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 53,000 units Additional information about the company follows: Hubs require $21 in direct materials per unit, and Sprockets require $16. The direct labor wage rate is $17 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) $ 29,160 120 96 216 Special processing (machine-hours) $ 230,000 4,600 0 4,600 General factory (organization-sustaining) $ 73,200 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	Activity rate
Machine setups	135	per setup	=29160/216
Special processing	50	per machine-hour	=230000/4600
2
	Hubs	Sprockets
Machine setups	16200	12960
Special processing	230000	0
Total overhead	246200	12960
Divided by units	16000	53000
Overhead per unit	15.39	0.24
	Hubs	Sprockets
Direct materials	21	16
Direct labor	10.2	3.4
Overhead per unit	15.39	0.24
Unit product cost	46.59	19.64