Question

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

Direct Labor-Hours per Unit Annual Production

Hubs............................................... 0.80 10,000 units

Sprockets....................................... 0.40 40,000 units

Additional information about the company follows:

a. Hubs require $32 in direct materials per unit, and Sprockets require $18.

b. The direct labor wage rate is $15 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:

Activity cost pool (activity measure) Estimated overhead cost Hubs Sprockets Total

Machine setups 72,000 100 300 400

Special processing 200,000 5,000 0 5,000

General factory 816,000 NA NA NA

Required:

1. Compute the activity rate for each activity cost pool. Did you compute an activity rate for all of the activity cost pools? Why?

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

Answer 1

1.Activity Rate is calculated as follows:
Overhead	Cost	Driver Quantity	Rate/Activity
Machine setups	72,000	400	180
Special Processing	200,000	5,000	40
General Factory	816,000
No, not for general factory overheads since no driver available
2.Calculation of cost
	Hubs	Sprockets
Direct material per unit	32	18
Direct Labor per unit	12	6
Overheads: Activity Rate*Consumption/Number of units
Machine Setups	1.8	1.35
Special Processing	20.00	0
Unit product cost	$65.80	$25.35