Fegerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: Additional information about the company follows: a. Hubs require $33 in direct muterials per unit, and Sprockets requite $10. b. The direct labor wage rate is $19 per hour. c. Hubs require special equipmont and are more complex to manufacture than Sprockets. d. The ABC system has the following activity cost pools: Required: 1. Compute the activity rate for each activity cost pook. 2. Determine the unit product cost of each product according to the ABC system. Complete this question by entering your answers in the tabs below.
The Correct Answer and Explanation is :
To solve this problem, we need to break it down into two parts: computing the activity rate for each activity cost pool and determining the unit product cost for each product according to the Activity-Based Costing (ABC) system.
Part 1: Compute the Activity Rate for Each Activity Cost Pool
The activity rate is calculated by dividing the total cost for each activity pool by the total activity level associated with that cost pool.
Steps:
- Identify the activity cost pools: These typically represent the different categories of activities that the company incurs, like machine setups, inspection, etc.
- Determine the cost for each activity: The costs for each activity will be provided or will need to be derived based on available data.
- Determine the activity driver for each cost pool: These are usually factors like machine hours, labor hours, or units produced.
- Calculate the activity rate: Activity rate = Total cost in activity pool / Total activity level
Part 2: Determine the Unit Product Cost of Each Product
The unit product cost under ABC is calculated by adding the following costs:
- Direct Materials Cost: For Hubs, this is $33; for Sprockets, it is $10.
- Direct Labor Cost: Multiply the number of labor hours required by the direct labor wage rate of $19/hour.
- Activity-Based Costs: These are allocated based on the activity rate for each activity cost pool, using the actual amount of activity consumed by each product.
Steps for calculating the unit product cost:
- Determine direct labor hours per unit for each product.
- Allocate indirect costs (activity costs) based on the activity rate for each cost pool.
- Sum up the direct materials, direct labor, and allocated overhead for each product to get the total unit cost.
Let’s apply this information and calculate the rates and costs if you can provide the specific details for the activity cost pools and activity drivers, or if there are any additional figures in the problem description.