Fogerty Company makes two productstitanium Hubs and Sprocket

Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow Direct Labor- Hours per Unit Productiorn 0.60 23,000 units 0.20 51,000 units Annual Hubs Sprockets Additional information about the company follows a. Hubs require $39 in direct materials per unit, and Sprockets require $17. b. The direct labor wage rate is $17 per hour. C. Hubs require special equipment and are more complex to manufacture than Sprockets d. The ABC system has the following activity cost pools Activit Estimated Overhead Cost $ 25,515 Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Hubs Sprockets Total 243 0 3,600 NA 108 135 $162,000 3,600 NA $177,000 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

Solution

Answer

Total Overheads

Total Activities

Activity rate per cost driver

Machine setup cost

$       25,515.00

243

$                      105.00

per no. of setups

Special processing cost

$    1,62,000.00

3600

$                         45.00

per machine hours

General Factory cost

$    1,77,000.00

NA

NA

Working for allocation to Hubs

Activity rate per cost driver

No. of activity driver

Overhead allocated

Machine setup cost

$             105.00

per no. of setups

135

$          14,175.00

Special processing cost

$                45.00

per machine hours

3600

$      1,62,000.00

TOTAL Overhead allocated

$      1,76,175.00

No. of units

23000

Overhead cost per unit

$                    7.66

Working for allocations to Sprockets

Activity rate per cost driver

No. of activity driver

Overhead allocated

Machine setup cost

$             105.00

per no. of setups

108

$          11,340.00

Special processing cost

$                45.00

per machine hours

0

$                         -  

TOTAL Overhead allocated

$          11,340.00

No. of units

51000

Overhead cost per unit

$                    0.22

Answer----

Hubs

Sprockets

A

Direct Material

$                39.00

$                        17.00

B = labor hour per unit x $17

Direct Labor

$                10.20

$                          3.40

C = allocated above

Overhead cost per unit

$                  7.66

$                          0.22

D = A+B+C

Total Unit product cost as per ABC

$                56.86

$                        20.62

	Total Overheads	Total Activities	Activity rate per cost driver
Machine setup cost	$       25,515.00	243	$                      105.00	per no. of setups
Special processing cost	$    1,62,000.00	3600	$                         45.00	per machine hours
General Factory cost	$    1,77,000.00	NA	NA