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	16,000	units
Sprockets	0.40	47,000	units

Additional information about the company follows:

1. Hubs require $27 in direct materials per unit, and Sprockets require $13.

2. The direct labor wage rate is $10 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)	$	28,080	130	104	234
Special processing (machine-hours)	$	144,000	4,800	0	4,800
General factory (organization-sustaining)	$	125,600	NA	NA	NA

Required:

1. Compute the activity rate for each activity cost pool.

Activity Cost Pool	Activity Rate
Machine setups		per setup
Special processing		per MH

2. Determine the unit product cost of each product according to the ABC system.

	Hubs	Sprockets
Direct materials
Direct labor
Overhead
Unit cost

Answer 1

1) Activity rate

Activity cost pool	Activity rate
Machine setups	28080/234 = 120	per setup
Special processing	144000/4800 = 30	per MH

2) Calculate unit product cost

	Hubs	Sprockets
Direct material	27	13
Direct labor	10*.80 = 8	10*.40 = 4
Overhead	(130*120+144000/16000) = 9.975	(104*120/47000) = 0.266
Unit cost	44.975	17.266