Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding t
ID: 2411911 • Letter: F
Question
Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:
Additional information about the company follows:
Hubs require $30 in direct materials per unit, and Sprockets require $13.
The direct labor wage rate is $14 per hour.
Hubs require special equipment and are more complex to manufacture than Sprockets.
The ABC system has the following activity cost pools:
Required:
1. Determine the unit product cost of each product according to the ABC system.
DirectLabor-Hours per Unit Annual
Production Hubs 0.70 12,000 units Sprockets 0.30 49,000 units
Explanation / Answer
Fogerty Company
Determination of the unit product cost of each product according to the ABC System:
Cost per unit -
Hubs
Sprockets
Direct materials
$30
$13
Direct labor
$9.80
$4.20
Overhead cost
$17.05
$3.65
unit product cost
$56.85
$20.85
Direct labor rate per unit is as follows,
Hubs - $14 x 0.70 DLH = $9.80 per unit
Sprockets = $14 x 0.30 DLH = $4.20 per unit
Workings –
Determination of the overhead cost assigned to each product:
Cost Pool
Estimated overhead cost
activity measure
Activity rate
Machine setups
$32,760
234 setups
32,760/234 = $140
$140 per setup
Special processing
$92,500
3,700 machine hours
92,500/3,700 = $25
$25 per machine hour
General factory
$258,300
23,100 direct labor hours
258,300/23,100 = $11.18
$11.18 per DLH
Since the activity measure for general factory is not provided in the question, the normal approach is to assume Direct Labor Hours as activity measure. Hence, the activity measure for General Factory is derived as follows,
Direct labor hours (DLH) for Hubs = 0.70 hours x 12,000 units = 8,400 DLH
Direct labor hours (DLH) for Sprockets = 0.30 hours x 49,000 units = 14,700 DLH
Hence total DLHs (activity measure) = 8,400 + 14,700 = 23,100 hours
Hubs
Cost Pool
Activity measure
Activity rate
overhead assigned
Machine setups
130 setups
$140
$18,200
Special processing
3,700 machine hours
$25
$92,500
General Factory
8,400 DLH
$11.18
$93,927
Total overhead assigned
$204,627
number of units
12,000
overhead cost per unit
$17.05
Sprockets
Cost Pool
Activity measure
Activity rate
overhead assigned
Machine setups
104 setups
$140
$14,560
Special processing
0
$25
0
General Factory
14,700 DLH
$11.18
$164,373
Total overhead assigned
$178,933
number of units
49,000
overhead cost per unit
$3.65
Cost per unit -
Hubs
Sprockets
Direct materials
$30
$13
Direct labor
$9.80
$4.20
Overhead cost
$17.05
$3.65
unit product cost
$56.85
$20.85