Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	20,000	units
Sprockets	0.30	60,000	units

Additional information about the company follows:

1. Hubs require $27 in direct materials per unit, and Sprockets require $19.

2. The direct labor wage rate is $14 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)	$	30,240	120	96	216
Special processing (machine-hours)	$	180,000	4,500	0	4,500
General factory (organization-sustaining)	$	140,000	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.

Answer 1

1.

Activity	Cost	Estimated Activity Volume		Cost per cost driver
a	b	c	d	e = b/c
Machine Setup	$     30,240.00	216	Setups	$         140.00	per setup
Special Processing	$ 1,80,000.00	4500	Machine hours	$            40.00	per machine hour
General Factory	$ 1,40,000.00	32000	Labor hours	$            4.375	per labor hour
	$ 3,50,240.00

2.

	Hubs	Sprockets
Direct Material	$       5,40,000	$       11,40,000
Direct Labor	$       1,96,000	$          2,52,000
Overhead
Machine Setup	$          16,800	$             13,440
Special Processing	$       1,80,000
General Factory	$          61,250	$             78,750
Total Cost	$       9,94,050	$       14,84,190
Units Produced	20000	60000
Cost per unit	$            49.70	$               24.74

	Hubs	Sprockets
Direct Material	$                    27	$                    19
Direct Labor	$                 9.80	$                 4.20
Overhead per unit	$               12.90	$                 1.54
Cost per unit	$               49.70	$               24.74