Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit Annual Production Hubs 0.60 18,000 units Sprockets 0.20 55,000 units Additional information about the company follows: A. Hubs require $20 in direct materials per unit, and Sprockets require $18. B. The direct labor wage rate is $13 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. Activity cost pool (Activity measure) Overhead Cost Hubs Sprockets totMachine set up ( Number of set ups) $72000 100 300 400Special processing ( Machine hours) $200000 5000 0 5000General factory (Direct labor hours) $816000 8000 16000 24000Required: 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.

Instructions are below.

Explanation:

Giving the following information:

Direct Labor-Hours:

Hubs= 0.6 per unit

Sprockets= 0.2 per unit

Production:

Hubs= 18,000 units

Sprockets= 55,000 units

Direct materials:

Hubs require $20

Sprockets require $18.

The direct labor wage rate is $13 per hour.

Activity cost pool (Activity measure) Overhead Cost Hubs Sprockets:

Machine set up ( Number of set ups) $72000 100 300 400

Special processing ( Machine hours) $200000 5000 0 5000

General factory (Direct labor hours) $816000 8000 16000 24000

First, we need to calculate the estimated overhead rate for each activity:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machine set up= 72000/400= $180 per set up

Special processing= 200,000/5000= $40 per machine-hour

General factory= 816,000/24000= $34 per direct labor hour

To allocate overhead, we need to use the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Activity per unit:

Hubs:

Machine set up= 100/18,000= 0.0055

Special processing= 5,000/18,000= 0.28

General factory= 8,000/18,000= 0.44

Sprockets:

Machine set up= 300/55,000= 0.0055

General factory= 16,000/55,000= 0.291

Now, the cost per unit:

Hubs:

Direct material= 20

Direct labor= 0.6*13= 7.8

Allocated overhead= (180*0.0055) + (40*0.28) + (34*0.44)= 36.06

Cost per unit= $63.86

Sprockets:

Direct material= 18

Direct labor= 0.2*13= 2.6

Allocated overhead= (180*0.0055) + (34*0.291)= 10.88

Cost per unit= $31.48