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Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit Annual Production Hubs 0.70 26,000 units Sprockets 0.30 48,000 units Additional...

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Accounting

Fogerty Company makes two products—titanium Hubs and Sprockets.Data regarding the two products follow:

Direct
Labor-Hours per Unit		Annual
Production
Hubs0.7026,000units
Sprockets0.3048,000units

Additional information about the company follows:

  1. Hubs require $30 in direct materials per unit, and Sprocketsrequire $16.

  2. The direct labor wage rate is $11 per hour.

  3. Hubs require special equipment and are more complex tomanufacture than Sprockets.

  4. The ABC system has the following activity cost pools:

EstimatedActivity
Activity Cost Pool (Activity Measure)Overhead CostHubsSprocketsTotal
Machine setups (number of setups)$29,160135108243
Special processing (machine-hours)$129,5003,70003,700
General factory (organization-sustaining)$277,400NANANA

Required:

1. Compute the activity rate for each activity cost pool.

2. Determine the unit product cost of each product according tothe ABC system.

Answer & Explanation Solved by verified expert
3.8 Ratings (674 Votes)

Solution

Activity rate
Machine setups $          120.00 Per setup
Special processing $             35.00 Per machine hour

.

Hubs Sprockets
Direct material $                  30.00 $                     16.00
Direct labor   $                    7.70 $                        3.30
Overheads $                    5.60 $                        0.27
Total Cost per unit $                  43.30 $                     19.57

Working

Calculation of Activity rates
Activity Cost Pool Activity driver Overhead Cost (A) Expected Activity (B) Activity rate (A/B)
Machine setups Number of setup $ 29,160 243 $          120.00 Per setup
Special processing Number of machine hour $ 129,500 3700 $             35.00 Per machine hour

.

Cost assigned to Hubs
Activity name Activity Rates Activity ABC Cost
(A) (B) (A x B)
Machine setups $        120.00                    135.00 $ 16,200.00
Special processing $           35.00                3,700.00 $ 129500.00
Total Overheads assigned $           145,700.00
Production             26,000.00
Overhead cost per unit $ 5.60

.

Cost assigned to Sprockets
Activity name Activity Rates Activity ABC Cost
(A) (B) (A x B)
Machine setups $        120.00 108 $ 12,960
Special processing $           35.00 0 $ 0
Total Overheads assigned $             12,960.00
Production             48,000.00
Overhead cost per unit $                 0.27

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