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. Compute the activity rate for each activity cost pool.

	Estimated cost	Estimated activity	activity rate
Setup cost	29160	216	135 per setup
Special processing	230000	4600	50 per machine hour

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

	Hubs	Sprockets
Direct material	21	16
Direct labour	17*.60 = 10.20	17*.20 = 3.40
Machine setup	(135*120/16000) = 1.01	(135*96/53000) = 0.24
Special processing	230000/16000 = 14.375	0
Unit product cost	46.585 or 46.59	19.64