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	25,000 units
Sprockets	0.10	41,000 units

Additional information about the company follows:

a. Hubs require $28 in direct materials per unit, and Sprockets require $12.

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

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

d. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated		Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	14,850	75	60	135
Special processing (machine-hours)	$	148,000	3,700	0	3,700
General factory (Direct labor-hours)	$	116,200	12,500	4,100	16,600

Required:

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

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.

Answer 1

	Overhead cost	Expected Activity	Activity rate
Machine setups	14850	135	110
Special processing	148000	3700	40
General factory	116200	16600	7
2
	Hubs	Sockets
Machine setups	8250	6600
Special processing	148000	0
General factory	87500	116200
Total	243750	122800
Units	25000	41000
Overhead per unit	9.75	3.00
	Hubs	Sockets
Direct materials	28	12
Direct labor	9.5	1.9
Overhead per unit	9.75	3.00
Unit product cost	47.25	16.90