Question

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

Additional information about the company follows:

a. Hubs require $32 in direct materials per unit, and Sprockets require $13.

b. The direct labor wage rate is $19 per hour.
c. Hubs are more complex to manufacture than Sprockets and they require special equipment.
d. The ABC system has the following activity cost pools:

Determine the unit product cost of each cost using the ABC system.

	Hubs	Sprockets
Direct Materials
Direct Labor
Overhead
Unit cost

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Determine the unit product cost of each cost using the ABC system. Additional information about the company follows:

 a. Hubs require $32 in direct materials per unit, and Sprockets require $13.

 b. The direct labor wage rate is $19 per hour.

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

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

Answer 1

Concepts and reason

Cost accounting:

Costing Accounting is a method of ascertaining, classifying and recording the costs with respect to the product (that is, goods) or services so as to ascertain the profits due to the production of such goods or providing of such services.

Costing accounting supplies detailed cost information to the management which in turn helps in fixing of price of the product. The detailed cost information also help in controlling the cost; budgetary control and standard costing are two important cost accounting techniques which are used to control costs. Further, there are certain limitations to cost accounting like using of estimates due to which the exact costs may not be ascertained.

Fundamentals

On the basis of traceability to cost object, costs can be classified as follows:

Direct costs: These are those costs which are easily identifiable with the product or a particular unit. Cost of Direct materials, direct labor are some examples of direct cost. Cost of direct materials mean the cost incurred to procure raw materials for the production and cost of direct labor means the cost incurred due to employment of labors for production.

Indirect costs: These are the costs which cannot be identified with the product or a particular unit. These are general cost and are incurred for number of units. Also knows as overhead costs (expenses), these are applied to the production on the basis of predetermined rates (example, machine set up cost on the basis of rate per set up) as these cannot be ascertained for one unit of production.

Calculate the overhead cost per unit as provided below:

Thus, overhead cost per unit for Hubs and Sprockets are $8.42 and $0.27 respectively.

Calculate the unit product cost of each product as provided below:

Working note:

1. Calculation of Direct labor per unit

Thus, cost per unit is $53.72 and $18.97 for Hubs and Sprockets respectively.

Ans:

The overhead cost per unit for Hubs and Sprockets are $8.42 and $0.27 respectively.

The cost per unit is $53.72 and $18.97 for Hubs and Sprockets respectively.