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Exercise 7-13 (Algo) Computing ABC Product Costs [LO7-3, LO7-4] Fogerty Company makes two productstitanium Hubs...

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Accounting

Exercise 7-13 (Algo) Computing ABC Product Costs [LO7-3, LO7-4]

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

Direct Labor-Hours per Unit Annual Production
Hubs 0.60 15,000 units
Sprockets 0.20 52,000 units

Additional information about the company follows:

  1. Hubs require $20 in direct materials per unit, and Sprockets require $15.

  2. The direct labor wage rate is $20 per hour.

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

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

Estimated Activity
Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total
Machine setups (number of setups) $ 25,200 140 112 252
Special processing (machine-hours) $ 245,000 4,900 0 4,900
General factory (organization-sustaining) $ 196,200 NA NA NA

Required:

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

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

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