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

Direct labor hours per UnitAnnual Production

Hubs 0.80 Units10000Units

Sprockets 0.40 Units40000 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 processing.
d. The ABC system has the following activity cost pools

Activity cost pool (Activity measure) Overhead
CostHubsSprocketstot
Machine set up ( Number of set ups)$72000100300400
Special processing ( Machine hours)$200000500005000
General factory (Direct labor hours)$81600080001600024000

Required:
1. Compute the activity rate(i.e predetermined overhead state) for each activity cost pool.
2. Determine the unit cost of each product according to the ABC system.

[tex]\left[\begin{array}{ccccc}$Activity&$Driver&$cost&$Total&$Rate\\$Machine Setups&setups&72,000&400&180\\$Special processing&$machine hours&200,000&5,000&40\\$General factory&$direct labor hours&816,000&24,000&34\\\end{array}\right][/tex]

sprocked unit cost: $ 38.95

hub units cost: $ 93.00

Explanation:

We divide teh cost pool over the total of the cost driver.

This give us the activitty rate.

Then we multiply each rate by the use of each product:

And divide by the total units to get the unti manufacturing overhead

[tex]\left[\begin{array}{ccc}$Activity&$Hubs&$Sprockets\\$Machine Setups&18,000&54,000\\$Special processing&200,000&0\\$General factory&272,000&54,4000\\$Total&490,000&598,000\\$Units&10,000&40,000\\$Overhead per unit&49&14.95\\\end{array}\right][/tex]

Finally we add the cost component:

Sprocked:

materials $ 18 + $ 15 x 0.40 units + $ 14.95 = 38.95

Hubs

materials $ 32 + $ 15 x 0.80 units + $ 49 = 93