Question

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

Direct Labor-Hours per Unit Annual Production

Hubs 0.50 24,000 units

Sprockets 0.10 57,000 units

Additional information about the company follows:

Hubs require $27 in direct materials per unit, and Sprockets require $11.

The direct labor wage rate is $19 per hour.

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

The ABC system has the following activity cost pools:

Activity Cost Pool (Activity Measure) Estimated Overhead Activity

cost Hubs Sprockets Total

Machine setups (number of setups) $ 13,500 75 60 135

Special processing (machine-hours) $ 210,000 4,200 0 4,200

General factory (organization-sustaining) $ 91,800 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