Question

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:

	Direct Labor - Hours per unit	Annual Production
Hubs	0.60	23000 units
Sprockets	0.20	51000 units

Additional information about the company follows:

a. Hubs require $37 in direct materials per unit, and Sprockets require $15.

b. The direct labor wage rate is $14 per hour.

c, Hubs require special equipment and are more complex to manufacture than Sprockets.

d. The ABC system has the following activity cost pools:

	Estimated Overhead Cost	Hubs Activity	Sprockets Activity	Total Activity
Machine Setups (# of setups)	$23760	110	88	198
Special processing (machine-hours)	$136500	3900	0	3900
General factory (organization-sustaining)	$177000	NA	NA	NA

Required:

1. Compute the activity rate for each activity cost pool.

2. Determine the unit product cost of each product according to the ABC system.

Answer 1

1
	Estimated Overhead Cost	Total Activity	Activity rate
Machine Setups	23760	198	120
Special processing	136500	3900	35
2
	Hubs	Sprockets
Machine Setups	13200	10560
Special processing	136500	0
Total overhead	149700	10560
Divide by units	23000	51000
Overhead per unit	6.51	0.21
	Hubs	Sprockets
Direct materials	37.00	15.00
Direct labor	8.40	2.80
Overhead per unit	6.51	0.21
Unit product cost	51.91	18.01