Chapter 2.A, Problem 1E

EXERCISE 2A-1 Activity-Based Absorption Costing LO2-5

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

	Direct Labor-Hours per Unit	AnnualProduction
Hubs	0.80	10,000 units
Sprockets	0.40	40,000 units

Additional information about the company follows:

1. Hubs require $32 in direct materials per unit and Sprockets require $18.
2. The direct labor wage rate is $15 per hour.
3. Hubs are more complex to manufacture than Sprockets and they require special processing.
4. The company's activity-based absorption costing system has the following activity cost pools:

Expected Activity

Activity Cost Pool (and Activity Measure)	EstimatedOverhead Cost	Hubs	Sprockets	Total
Machine setups (number of setups)	$72,000	100	300	400
Special processing (machine-hours)	$200,000	5,000	0	5,000
General factory (Direct labor-hours)	$816,000	8,000	16,000	24,000

Required:

1. Compute the activity rate for each activity cost pool.
2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.