Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.60	11,000	units
Sprockets	0.20	47,000	units

Additional information about the company follows:

Hubs require $22 in direct materials per unit, and Sprockets require $14.

The direct labor wage rate is $14 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)	$	13,680	80	64	144
Special processing (machine-hours)	$	123,000	4,100	0	4,100
General factory (organization-sustaining)	$	81,800	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

Solution 1:

Determination of activity rate for each activity & allocation of overhead and overhead cost per unit
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Hub		Sprockets
					Usage	Allocated Costs	Usage	Allocated Costs
Machine Setups	$13,680.00	Nos of setups	144	$95.00	80	$7,600.00	64	$6,080.00
Special processing	$123,000.00	Machine hours	4100	$30.00	4100	$123,000.00	0	$0.00
General factory	$81,800.00	No allocation
Total	$218,480.00					$130,600.00		$6,080.00
Nos of units						11000		47000
Overhead cost per unit						$11.87		$0.13

Solution 2:

Computation of Unit Product Cost - ABC
Particulars	Hubs	Sprockets
Direct Material	$22.00	$14.00
Direct Labor	$8.40	$2.80
Overhead	$11.87	$0.13
Unit Product Cost	$42.27	$16.93