Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit 0.70 0.30 Hubs Sprockets Annual Production 20,000 units 40,000 units Additional information about the company follows: a. Hubs require $29 in direct materials per unit, and Sprockets require $12. b.The direct labor wage rate is $10 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special equipment. d. The ABC system has the following activity cost pools: Activity Estimated Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total Machine setups (number of setups) 27.945 115 92 207 Special processing (machine-hours) $ 236,500 4,300 0 4,300 General factory (organization-sustaining) $ 74,000 NA NA NA A 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. 3.Comparing Traditional and Activity-Based Product Margins Smoky Mountain Corporation makes two types of hiking bootsXtreme and the Pathfinder. Data concerning these two product lines appear below: Selling price per unit Direct materials per unit Direct labor per unit Direct labor-bours per unit Estimated annual production and sales Xtreme $120.00 $ 63.60 $ 12.00 1.2 DLHS 25,000 units Pathfinder $ 87.00 $ 55.00 $ 10.00 1.0 DLHS 72,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data conceming manufacturing overhead and direct labor- hours for the upcoming year appear below: Estimated total manufacturing overhead Estimated total direct labor-bours $2,040,000 102,000 DLHS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Estimated Expected Activity Xtreme Pathfinder Total Overhead Cost Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other $622,200 644,000 30.000 250 72,000 102.000 210 460 700.000 73,800 1 NA 1 NA 2 NA Total manufacturing overhead cost $2.040.000 Compute the product margins for the Xtreme and the Pathfinder products under the activity- based costing system 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments
