Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.50	16,000	units
Sprockets	0.10	41,000	units

Additional information about the company follows:

1. Hubs require $36 in direct materials per unit, and Sprockets require $18.

2. The direct labor wage rate is $19 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)	$	27,720	140	112	252
Special processing (machine-hours)	$	189,000	4,200	0	4,200
General factory (organization-sustaining)	$	81,800	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.

Answer 1

Statement showing computations
Particulars	Amount	Activity	Cost per activity	Activity of Hubs	Cost Allocated to Hub	Activity of Sprockets	Cost Allocated to Sprockets
Machine setups (number of setups)	27,720.00	252.00	110	140.00	15,400.00	112.00	12,320.00
Special processing (machine-hours)	189,000.00	4,200.00	45	4,200.00	189,000.00	-	-
	216,720.00				204,400.00		12,320.00
Particulars	Hubs	Sprockets
Direct Materials per unit	36.00	18.00
Direct Labour per unit Hub = 19*.50 Sprockets = 19*.10	9.50	1.90
Overhead per unit Hub = 204,400/16000 Sprockets = 12320/41000	1.00	0.30
unit product cost of each product	46.50	20.20