Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:
Direct Labor-Hours per Unit |
Annual Production |
||
Hubs | 0.50 | 10,000 | units |
Sprockets | 0.10 | 40,000 | units |
Additional information about the company follows:
Hubs require $37 in direct materials per unit, and Sprockets require $14.
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) | $ | 24,570 | 105 | 84 | 189 |
Special processing (machine-hours) | $ | 180,000 | 4,500 | 0 | 4,500 |
General factory (organization-sustaining) | $ | 33,000 | 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 | $130 per setup |
Special processing | $40 per MH |
Explanation:
Activity Cost Pool | Overhead cost | Total cost drivers | Activity Rate |
Machine setups | $24,570 | 189 | $130 per setup ($24,570/189) |
Special processing | $180,000 | 4,500 | $40 per MH ($180,000/4,500) |
2.
Hubs | Sprockets | |
Direct Materials | $37 | $14 |
Direct labor | $8 | $1.6 |
Overhead | $19.365 | $0.273 |
Unit cost | $64.365 | $15.873 |
Explanation:
Hubs | Sprockets | |
Machine setups | $13,650 (105*$130) | $10,920 (84*$130) |
Special processing | $180,000 (4,500*$40) | - |
Total overhead cost allocated | $193,650 | $10,920 |
Total units | 10,000 | 40,000 |
Overhead cost per unit | $19.365 | $0.273 |
Hubs | Sprockets | |
Direct labor hours per unit | 0.50 | 0.10 |
Wage rate per hour | $16 | $16 |
Direct labor cost per unit | $8 (0.50*$16) | $1.6 (0.10*$16) |
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