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:
Hubs require $27 in direct materials per unit, and Sprockets require $16.
The direct labor wage rate is $12 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) | $ | 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.
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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