Question

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

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 19,000 units
Sprockets 0.40 47,000 units

Additional information about the company follows:

  1. Hubs require $27 in direct materials per unit, and Sprockets require $16.

  2. The direct labor wage rate is $12 per hour.

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

  4. 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) $ 30,375 135 108 243
Special processing (machine-hours) $ 180,000 3,600 0 3,600
General factory (organization-sustaining) $ 316,000 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.

Homework Answers

Answer #1

1.

Activity Cost Pool Activity Rate
Machine setups $125 per setup
Special processing $50 per MH

Explanation:

Activity Cost Pool Overhead Cost Total cost drivers Activity Rate
Machine setups $30,375 243 $125 per setup ($30,375/243)
Special processing $180,000 3,600 $50 per MH ($180,000/3,600)

2.

Hubs Sprockets
Direct Materials $27 $16
Direct labor $9.6 $4.8
Overhead $10.362 $0.287
Unit cost $46.962 $21.087

Explanation:

Hubs Sprockets
Machine setups $16,875 (135*$125) $13,500 (108*$125)
Special processing $180,000 (3,600*$50)
Total overhead cost allocated $196,875 $13,500
Total units 19,000 47,000
Overhead cost per unit $10.362 ($196,875/19,000) $0.287 ($13,500/47,000)
Hubs Sprockets
Direct labor hours per unit 0.80 0.40
Wage rate per hour $12 $12
Direct labor cost $9.6 (0.8*$12) $4.8 (0.4*$12)
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