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	12,000	units
Sprockets	0.40	49,000	units

Additional information about the company follows:

1. Hubs require $25 in direct materials per unit, and Sprockets require $19.

2. The direct labor wage rate is $11 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)	$	22,770	115	92	207
Special processing (machine-hours)	$	193,500	4,300	0	4,300
General factory (organization-sustaining)	$	127,200	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

Solution 1:

Determination of activity rate for each activity & allocation of overhead and overhead cost per unit
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Hub		Sprockets
					Usage	Allocated Costs	Usage	Allocated Costs
Machine Setups	$22,770.00	Nos of setups	207	$110.00	115	$12,650.00	92	$10,120.00
Special processing	$193,500.00	Machine hours	4300	$45.00	4300	$193,500.00	0	$0.00
General factory	$127,200.00	No allocation
Total	$343,470.00					$206,150.00		$10,120.00
Nos of units						12000		49000
Overhead cost per unit						$17.18		$0.21

Solution 2:

Computation of Unit Product Cost - ABC
Particulars	Hubs	Sprockets
Direct Material	$25.00	$19.00
Direct Labor	$8.80	$4.40
Overhead	$17.18	$0.21
Unit Product Cost	$50.98	$23.61