Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	12,000	units
Sprockets	0.30	42,000	units

Additional information about the company follows:

Hubs require $21 in direct materials per unit, and Sprockets require $18.

The direct labor wage rate is $11 per hour.

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

The ABC system has the following activity cost pools:

	Estimated		Activity
Activity Cost Pool (Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	15,840	80	64	144
Special processing (machine-hours)	$	150,000	5,000	0	5,000
General factory (organization-sustaining)	$	184,800	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

1
	Activity rates
Machine setups	110	= 15,840/144
Special processing	30	=150,000/5,000
2
	Hubs	Sprockets
Machine setups	8,800	7040
Special processing	150,000	0
Total overhead	158,800	7040
Units	12000	42,000
Overhead per unit	13.23	0.1676
	Hubs	Sprockets
Direct materials	21	18
Direct labor	7.7	3.3
Overhead	13.23	0.1676
Unit product cost	41.93	21.4676