Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding

Question

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor- Hours per Unit Production 0.60 26,000 units 0.20 47,000 units Annual Hubs Sprockets Additional information about the company follows: a. Hubs require $27 in direct materials per unit, and Sprockets require $12. b. The direct labor wage rate is $15 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special equipment. d. The ABC system has the following activity cost pools Activity Estimated Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Overhead Cost Hubs Sprockets Total 145 4,300 NA 261 4,300 NA 116 32,625 $193,500 $175,400

Explanation / Answer

1.Activity Rate:

Machine Setup= Total Machine setup cost/Total No. of setups

=32625/261

=125 per setup

Special Processing= Total Processing cost/ TotalMachine Hours

= 193500/4300

=45 per machine hours

2.Unit Product Cost:

Hubs:

Direct Material $27

Direct Labor(0.6*$15) $9

Machine Setup(125*145/26000) $ 0.70

Special Processing(45*4300/26000) $7.44

General factory(on the basis of labour hours)

={(175400*(26000*0.6))/25000}/26000 = $ 4.21

So, total for Hubs is $48.35

For Sprockets:

Direct Material $12

Direct Labour(0.2*15) $ 3

Machine Setup(125*116/47000) $ 0.31

General Factory

(175400*(47000*0.2))/25000}/26000 = $ 2.54

So, Total unit cost for Sprockets is $17.85.

Notes:

General Overheads are apportioned on the basis of Direct labour hours.

Total hours are 26000*0.6 (+) 47000*0.2

=25000 hours.

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