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 | 23,000 | units |
| Sprockets | 0.20 | 45,000 | units |
Additional information about the company follows:
Hubs require $23 in direct materials per unit, and Sprockets require $13.
The direct labor wage rate is $19 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) | $ | 18,900 | 105 | 84 | 189 |
| Special processing (machine-hours) | $ | 195,000 | 3,900 | 0 | 3,900 |
| General factory (organization-sustaining) | $ | 193,800 | 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 rate :
| Activity rate | |
| Machine setups (number of setups) (18900/189) | 100 per setup |
| Special processing (machine-hours) (195000/3900) | 50 per machine hour |
2. Determine the unit product cost of each product according to the ABC system.
| Hubs | Sprockets | |
| Direct material | 23 | 13 |
| Direct labour | 19*.60 = 11.40 | 19*.20 = 3.80 |
| Machine setup | 105*100/23000 = 0.46 | 84*100/45000 = 0.19 |
| Special processing | 195000/23000 = 8.48 | 0 |
| Total Unit cost | 43.34 | 16.99 |
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