Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.80	21,000	units
Sprockets	0.40	49,000	units

Additional information about the company follows:

Hubs require $25 in direct materials per unit, and Sprockets require $14.

The direct labor wage rate is $18 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)	$	25,920	120	96	216
Special processing (machine-hours)	$	205,000	4,100	0	4,100
General factory (organization-sustaining)	$	271,600	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 Cost Pool	Estimated Overhead Cost	Expected Activity	Activity Rate
Machine setups	25920	216	120	per setup
Special processing	205000	4100	50	per machine-hour
2
Hubs:
Activity Cost Pool	Activity Rate	Activity	ABC Cost
Machine setups	120	120	14400
Special processing	50	4100	205000
Total			219400
Sprockets:
Activity Cost Pool	Activity Rate	Activity	ABC Cost
Machine setups	120	96	11520
Special processing	50	0	0
Total			11520
	Hubs	Sprockets
Direct materials	25	14
Direct labor	14.40	7.20
Overhead:
$219,400 ÷ 21,000 units	10.45
$11,520 ÷ 49,000 units		0.24
Unit cost	49.85	21.44