Question

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit Annual Production Hubs 0.80 13,000 units Sprockets 0.40 59,000 units Additional information about the company follows: Hubs require $38 in direct materials per unit, and Sprockets require $15. The direct labor wage rate is $13 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) $ 24,840 115 92 207 Special processing (machine-hours) $ 108,000 3,600 0 3,600 General factory (organization-sustaining) $ 293,600

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 rate
Machine setups	120	=24840/207
Special processing	30	=108000/3600
2
	Hubs	Sprockets
Machine setups:
115 X 120	13800
92 X 120		11040
Special processing	108000	0
Total overhead	121800	11040
Divide by units	13000	59000
Overhead per unit	9.37	0.19
	Hubs	Sprockets
Direct materials	38.00	15.00
Direct labor	10.40	5.20
Overhead	9.37	0.19
Unit cost	57.77	20.39