Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding t
ID: 2597859 • 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 $28 in direct materials per unit, and Sprockets require $20.
The direct labor wage rate is $18 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 0.80 17,000 units Sprockets 0.40 52,000 units Activit Estimated Overhead Cost $ 23,085 Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Hubs Sprockets Total 95 $192,000 4,800 NA 76 0 4,800 NA $408,800 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 Complete this question by entering your answers in the tabs below. Required1Required2 Determine the unit product cost of each product according to the ABC system. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Hubs Sprockets $ Direct materials Direct labor Overhead Unit cost 28.00 20.00 14.40 7.20 2.40$27.20
Explanation / Answer
Fogerty Company
Machine setups
Machine setups
cost per setup
allocated cost
Hubs
95
$135
$12,825
Sprockets
76
$135
$10,260
Total
171
overhead cost of machine setups
$23,085
Special Processing
machine hours
cost per setup
allocated cost
Hubs
4,800
$40
$192,000
Sprockets
0
Total
4,800
overhead cost
$192,000
Allocation of estimated overhead cost:
Hubs
Sprockets
Machine setups
$12,825
$10,260
Special processing
$192,000
$0
Total overhead cost
$204,825
$10,260
Number of units
17,000
52,000
overhead cost per unit
$12.05
$0.20
Cost per machine setup = estimated overhead cost of machine setups/total number of machine setups
= $23,085/171 = $135 per setup
Cost per machine hour = estimated overhead cost of special processing/number of machine hours
= $192,000/4,800 machine hours = $40 per machine hour
Estimated General factory overhead cost is not allocated as the basis for allocation is not specified in the question.
Hubs
Sprockets
Direct materials
$28
$20
Direct labor
$14.40
$7.20
Overhead cost
$12.05
$0.20
Unit cost
$54.45
$27.40
Direct labor cost per unit is calculated as follows,
Hub – 0.80 hours per unit at $18 per hour, so one unit cost = $18 x 0.8 = $14.40
Sprockets = 0.40 hours per unit at $18 per hour, so one unit cost = $18 x 0.2 = $7.20
Machine setups
Machine setups
cost per setup
allocated cost
Hubs
95
$135
$12,825
Sprockets
76
$135
$10,260
Total
171
overhead cost of machine setups
$23,085
Special Processing
machine hours
cost per setup
allocated cost
Hubs
4,800
$40
$192,000
Sprockets
0
Total
4,800
overhead cost
$192,000