Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	19,000	units
Sprockets	0.30	47,000	units

Additional information about the company follows:

Hubs require $34 in direct materials per unit, and Sprockets require $15.

The direct labor wage rate is $16 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)	$	18,360	85	68	153
Special processing (machine-hours)	$	129,500	3,700	0	3,700
General factory (organization-sustaining)	$	281,200	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	Activity rate
Machine setups	120	=18360/153
Special processing	35	=129500/3700
2
	Hubs	Sprockets
Activity Cost Pool:
Machine setups
85 X 120	10200
68 X 120		8160
Special processing	129500	0
Total overhead	139700	8160
Divided by units	19000	47000
Overhead per unit	7.35	0.17
	Hubs	Sprockets
Direct materials per unit	34.00	15.00
Direct labor cost per unit	11.20	4.80
Overhead per unit	7.35	0.17
Unit product cost	52.55	19.97