Answer:
Fogerty Company
1. Computation of the Activity Rate for each Activity Cost Pool:
a. Machine setup = $31,590/243 = $130 per setup
b. Special processing = $282,000/4,700 = $60 per machine hour
c. General factory = $700,400/41,200 = $17 per direct labor hour
2. Computation of the Unit Product Cost, using activity-based absorption costing:
Titanium Hubs Sprockets
Direct materials $39.00 $39.00
Direct labor $14.40 $7.20
Overhead $23.93 $7.11
Total unit cost $77.33 $53.31
Explanation:
a) Data:
Titanium Hubs Sprockets
Direct Labor-Hours per Unit 0.80 0.40
Annual Production 29,000 units 45,000 units
Direct materials $39 per unit $12 per unit
Direct labor wage rate is $18 per hour
Total direct labor hours 23,200 hours 18,000 hours
Direct labor cost $417,600 $324,000
Direct labor cost per unit $14.40 $7.20
Direct materials costs $1,131,000 $540,000
Activity costing system for Overhead Costs:
Titanium Hubs Sprockets Total
Activity Costs
Machine setups
(number of setups) $31,590 135 108 243
Special processing
(machine hours) $282,000 4,700 0 4,700
General factory
(direct labor hours) $700,400 23,200 18,000 41,200
Activity Rate:
a. Machine setup = $31,590/243 = $130 per setup
b. Special processing = $282,000/4,700 = $60 per machine hour
c. General factory = $700,400/41,200 = $17 per direct labor hour
d) Determination of overhead per unit cost
Titanium Hubs Sprockets
Machine setup $17,550 $14,040
Special processing $282,000 $0
General factory $394,400 $306,000
Total overhead $693,950 $320,040
Annual Production 29,000 units 45,000 units
Overhead cost per unit $23.929 $7.112
e) Activity-based costing system is a costing technique where costs are grouped into activity pools and the costs to be allocated to each product or service depends on its consumption from the activity pools involved. The identification of activities in an organization is a way of explaining that costs are caused by activities and not by their nature or period incurred.
