Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding t
ID: 2551786 • 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 $25 in direct materials per unit, and Sprockets require $17.
The direct labor wage rate is $12 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. Compute the activity rate for each activity cost pool.
2. Determine the unit product cost of each product according to the ABC system.
DirectLabor-Hours per Unit Annual
Production Hubs 0.70 26,000 units Sprockets 0.30 49,000 units
Explanation / Answer
a)Compute the activity for each cost pool.
Activity Cost Pool
(a)Estimated Overhead Cost
(b)ExpectedActivity
(a) ÷ (b)
ActivityRateMachine
Machine setups
23760
198 setup
120 per setup
Special processing
92500
3700 MH
25 per MH
General factory
253400
0 DLH
0 per DLH
(b) Determine the unit cost of each product according to the ABC system, including direct materials and direct labor
Hubs
Activity Cost Pool
(a)Activity Rate
(b)Activity
(a) × (b)ABC Cos
Machine setups
120 per setup
110
13200
Special processing
25 per MH
3700
92500
General factory
0 per DLH
0
0
Total
105700
Sprockets:
Activity Cost Pool
(a)Activity Rate
(b)Activity
(a) × (b)ABC Cos
Machine setups
120 per setup
88
10560
Special processing
25 per MH
0
0
General factory
0 per DLH
0
0
Total
10560
Hubs Sprockets
Direct materials 25.00 17.00
Direct labor:
$12 per DLH × 0.70 DLHs per unit 8.40
$12 per DLH × 0.30 DLHs per unit 3.60
Overhead:
$ 105700 ÷ 26000 units 4.06
$ 10560 ÷ 49000 units 0.21
Unit cost 37.46 20.81
Activity Cost Pool
(a)Estimated Overhead Cost
(b)ExpectedActivity
(a) ÷ (b)
ActivityRateMachine
Machine setups
23760
198 setup
120 per setup
Special processing
92500
3700 MH
25 per MH
General factory
253400
0 DLH
0 per DLH