Question

Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor- Hours per Unit 0.70 0.30 Hubs Sprockets Annual Production 14,000 units 45,000 units Additional information about the company follows: a. Hubs require $37 in direct materials per unit, and Sprockets require $17. b. The direct labor wage rate is $19 per hour. c. Hubs require special equipment and are more complex to manufacture than Sprockets. d. The ABC system has the following activity cost pools: Activity Estimated Overhead Cost $ 21, 375 $168,000 $252,800 Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Hubs 125 Sprockets Total 100 225 4,800 NA NA 4,800 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 rate

Activity cost pool	Activity rate
Machine setups (21375/225)	95 per setup
Special processing (168000/4800)	35 per MH

2) Calculate unit product cost

	Hubs	Sprockets
Direct materials	37	17
Direct labor	19*.70 = 13.30	5.7
Overhead	(125*95+168000)/14000 = 12.85	(100*95)/45000 = 0.21
Unit cost	63.15	22.91