Exercise 613 Computing ABC Product Costs LO63 LO64 Fogerty C

Exercise 6-13 Computing ABC Product Costs [LO6-3, LO6-4] Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow Direct Labor- Hours per Unit 0.80 0.40 Annual Hubs Sprockets Production 10,000 units 40,000 units Additional information about the company follows a. Hubs require $32 in direct materials per unit, and Sprockets require $18 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 Estimated Overhead Cost Activity Sprockets Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Hubs Total 100 5,000 NA 300 0 NA 400 5,000 NA 72,000 $ 200,000 $ 816,000

Solution

1) Activity Cost pool Activity rate Machine setups $        180 per setup special Processing $          40 per MH Working: Activity Cost pool Estimated Overhead costs Total Activity Activity rate Machine setups $           72,000 400 $                   180 per setup special Processing $       2,00,000 5000 $                     40 per MH 2) Hubs Sprockets Direct Materials $             32.00 $              18.00 Direct Labor $             12.00 $                6.00 Overhead $             21.80 $                1.35 Unit cost $             65.80 $              25.35 Working: a. Hubs Sprockets Direct Labor hours per unit                    0.80                     0.40 Direct Labor wages rate $                   15 $                    15 Direct Labor costs $             12.00 $                6.00 b. Overhead assignment Hubs Sprockets Activity rate Number of activity Overhead assigned Number of activity Overhead assigned Machine setups $        180 100 $            18,000 300 $             54,000 special processing $          40 5000 $        2,00,000 $        2,18,000 $             54,000 c. Hubs Sprockets Total Overhead costs $       2,18,000 $            54,000 Total Production in units               10,000                40,000 Overhead costs per unit $             21.80 $                1.35