Question

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.90	15,000	units
Sprockets	0.50	49,000	units

Additional information about the company follows:

1. Hubs require $35 in direct materials per unit, and Sprockets require $10.

2. The direct labor wage rate is $18 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. 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)	$	24,300	100	80	180
Special processing (machine-hours)	$	220,000	4,000	0	4,000
General factory (organization-sustaining)	$	136,000	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. Note - 1st: Determine total overhead costs for each product (Activity x Activity Rate) 2nd: Divide Total Overhead Costs by Annual Production to get a per unit cost.

Answer 1

1.Activity Rate is calculated as follows:
Overhead	Cost	Driver Quantity	Rate/Activity
Machine setups	24,300	180	135
Special Processing	220,000	4,000	55
General Factory	136,000	NA
2.Calculation of cost
	Hubs	Sprockets
Direct material per unit	35	10
Direct Labor per unit	16.2	9
Overheads: Activity Rate*Consumption
Machine Setups	13500	10800
Special Processing	220000	0
Total overheads	233500	10800
Overhead per unit	15.567	0.220408163
Unit product cost	$66.77	$19.22