EXERCISE 7-13 Computing ABC Product Costs LO7-3, LO7-4 Fogerty Company makes two

Question

EXERCISE 7-13 Computing ABC Product Costs LO7-3, LO7-4 Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit 0.80 0.40 Annual Hubs 10,000 units 40,000 units a. b. c. d. Additional information about the company follows: Hubs require $32 in direct materials per unit, and Sprockets require $18. The direct labor wage rate is $15 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. The ABC system has the following activity cost pools: Activity Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Cost $72.000 $816,000 Hubs Sprockets Total 400 5,000 NA 100 $200,000 5,000 NA 300 0 NA Compute the activity rate for each activity cost pool. Did you compute an activity rate for al of the activity cost pools? Why? Determine the unit product cost of each product according to the ABC system. 2.

Explanation / Answer

Hubs Sprockets Production 10000 40000 Direct Material 32 18 Direct Labor Hours 0.8 0.4 Direct Labor 12 6 1 Each Activity Cost Pool Activity Cost Pools Est. OH Total Activity Rate Per Activity Hubs Sprockets Machine Setups 72000 400 180 100 300 Special Processing 200000 5000 40 5000 0 General Factory 816000 NA NA NA NA No, It is not possible to calculate the Activity rate for General Factory OH Cost, Since there is no Activity to divide it. Hubs Sprockets 2 Production 10000 40000 Direct Material 320000 720000 Direct Labor 120000 240000 Machine Setup 18000 54000 Special Processing 200000 0 Total Cost 668000 1054000 Units 10000 40000 Per Unit Cost 66.8 26.35 Note: General Factory OH are not allocatable as per ABC System.

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