Question

Exercise 7-13 Computing ABC Product Costs [LO7-3, LO7-4]

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	30,000	units
Sprockets	0.40	54,000	units

Additional information about the company follows:

Hubs require $23 in direct materials per unit, and Sprockets require $20.

The direct labor wage rate is $10 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)	$	17,595	85	68	153
Special processing (machine-hours)	$	202,500	4,500	0	4,500
General factory (organization-sustaining)	$	261,600	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.

Complete this question by entering your answers in the tabs below.

Required 1

Required 2

Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Hubs	Sprockets
Direct materials
Direct labor
Overhead
Unit cost

Answer 1

1. Compute the activity rate for each activity cost pool.

	Activity rate
Machine setups (17595/153)	115 per setup
Special processing (202500/4500)	45 per machine hour

2. Determine the unit product cost of each product according to the ABC system.

Hubs overhead cost per unit = (115*85+202500)/30000 = 7.08

Sprockets = (115*68)/54000 = 0.14

	Hubs	Sprockets
Direct material	23	20
Direct labour	8	4
Overhead	7.08	0.14
Unit cost	38.08	24.14