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	16,000	units
Sprockets	0.20	47,000	units

Additional information about the company follows:

Hubs require $37 in direct materials per unit, and Sprockets require $12.

The direct labor wage rate is $20 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)	$	31,590	135	108	243
Special processing (machine-hours)	$	198,000	4,400	0	4,400
General factory (organization-sustaining)	$	56,600	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
	ABC	Total cost	Total cost driver	Cost per driver
	Machine setups	31590	243	130
	Special processing	198000	4400	45
		Hubs	Sprockets
	Machine setups	17550	14040	31590
	Special processing	198000	0	198000
	Total overheads cost	215550	14040	229590
	Number of units	16000	47000
	Overhead cost per unit	13.47	0.30
2		Hubs	Sprockets
	Direct material	37	12
	Direct labor	12	4
	Overhead	13.47	0.3
	Unit cost	62.47	16.3