Homework SourseFogerty Company makes two productstitanium Hubs and Sprocket
Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:
Additional information about the company follows:
Hubs require $39 in direct materials per unit, and Sprockets require $11.
The direct labor wage rate is $10 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
| Direct Labor-Hours per Unit | Annual Production | ||
| Hubs | 0.60 | 22,000 | units |
| Sprockets | 0.20 | 49,000 | units |
Solution
Answer:
a)
Activity Cost Pool
(a)
(b)
(a) ÷ (b)
Estimated
Expected
Activity
Overhead
Activity
Rate
Cost
Machine setups
$22,230
234
setups
$95.00
per setup
Special processing
$147,000
4,200
MHs
$35.00
per MH
General factory
$111,200
23,000
DLHs
$4.83
per DLH
____________________________________________
b)
Hubs:
Activity Cost Pool
(a)
(b)
(a) × (b)
Activity Rate
Activity
ABC Cost
Machine setups
$95
per setup
130
setups
12350
Special processing
$35
per MH
4,200
MHs
147000
General factory
$4.83
per DLH
13,200
DLHs
63819.1304
Total
$223,169
Sprockets:
Activity Cost Pool
(a)
(b)
(a) × (b)
Activity Rate
Activity
ABC Cost
Machine setups
$95
per setup
104
setups
9880
Special processing
$35
per MH
0
MHs
0
General factory
$4.8
per DLH
9,800
DLHs
47380.9
Total
$57,261
Calculation of the unit product cost of each product according to the ABC system
Hubs
Sprockets
Direct materials
$39.00
$11.00
Direct labor:
$10 per DLH × 0.60 DLHs per unit
6
$10 per DLH × 0.20 DLHs per unit
2
Overhead:
$223,169 ÷ 22,000 units
10.14
$57261 ÷ 49,000 units
1.17
Unit cost
$55.14
$14.17
| Activity Cost Pool | (a) | (b) | (a) ÷ (b) | ||
| Estimated | Expected | Activity | |||
| Overhead | Activity | Rate | |||
| Cost | |||||
| Machine setups | $22,230 | 234 | setups | $95.00 | per setup |
| Special processing | $147,000 | 4,200 | MHs | $35.00 | per MH |
| General factory | $111,200 | 23,000 | DLHs | $4.83 | per DLH |
