Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products

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

Direct
LaborHours
per Annual
Unit Production
Hubs

0.80

25,000

units

Sprockets

0.40

58,000

units

Additional information about the company follows:
a. Hubs require $37 in direct materials per unit, and Sprockets require $14.
b. The direct labor wage rate is $11 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

Machine setups (number of setups)

$27,720

140

Special processing (machine-hours)

$120,000

4,800 0

4,800

General factory (organization-sustaining)

$321,600

NA

NA

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

Hubs

Sprockets
112

NA

Total

252

2. Determine the unit product cost of each product according to the ABC system. (Round intermediate
calculations and final answers to 2 decimal places.)

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers
these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of
goods sold to those hospitals by 7%. For example, if a hospital buys supplies from Worley that had cost
Worley $100 to buy from manufacturers, Worley would charge the hospital $107 to purchase these
supplies.
For years, Worley believed that the 7% markup covered its selling and administrative expenses and
provided a reasonable profit. However, in the face of declining profits Worley decided to implement an
activity-based costing system to help improve its understanding of customer profitability. The company
broke its selling and administrative expenses into five activities as shown below:
Activity Cost Pool (Activity Measure)
Customer deliveries (Number of deliveries)
Manual order processing (Number of
manual orders)
Electronic order processing (Number of
electronic orders)
Line item picking (Number of line items
picked)
Other organization-sustaining costs (None)

Total Cost
$

Total selling and administrative expenses

$

332,000

Total Activity
4,000 deliveries

355,000

5,000 orders

300,000

12,000 orders

798,000 420,000 line items
620,000
2,405,000

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial
(both hospitals purchased a total quantity of medical supplies that had cost Worley $33,000 to buy from its
manufacturers):
Activity
Activity Measure
Number of deliveries
Number of manual orders
Number of electronic orders
Number of line items picked

University
14
0
12
180

Memorial
28
49
0
210

Required:
1. Compute the total revenue that Worley would receive from University and Memorial.

The operations vice president of Security Home Bank has been interested in investigating the efficiency
of the bank’s operations. She has been particularly concerned about the costs of handling routine
transactions at the bank and would like to compare these costs at the bank’s various branches. If the
branches with the most efficient operations can be identified, their methods can be studied and then
replicated elsewhere. While the bank maintains meticulous records of wages and other costs, there has
been no attempt thus far to show how those costs are related to the various services provided by the
bank. The operations vice president has asked your help in conducting an activity-based costing study of
bank operations. In particular, she would like to know the cost of opening an account, the cost of
processing deposits and withdrawals, and the cost of processing other customer transactions.
The Westfield branch of Security Home Bank has submitted the following cost data for last year:

Teller wages

$

159,000

Assistant branch
manager salary

73,000

Branch manager
salary

85,000

Total

$

317,000

Virtually all other costs of the branch—rent, depreciation, utilities, and so on—are organization
sustaining costs that cannot be meaningfully assigned to individual customer transactions such as
depositing checks.
In addition to the cost data above, the employees of the Westfield branch have been interviewed
concerning how their time was distributed last year across the activities included in the activity-based
costing study. The results of those interviews appear below:

Distribution of Resource Consumption Across Activities

Opening
Accounts

Processing
Deposits
and
Withdrawals

Processing
Other
Customer Other
Transactions Activities

Teller wages

4

%

75

%

15

%

6

%

100%

Assistant branch manager salary

11

%

11

%

29

%

49

%

100%

Branch manager salary

4

%

0

%

19

%

77

%

100%

The manager of the Westfield branch of Security Home Bank has provided the following data
concerning the transactions of the branch during the past year:

Activity

Total Activity at the Westfield Branch

Opening accounts

250

accounts opened

Processing deposits and withdrawals

53,500

deposits and withdrawals processed

Processing other customer transactions 1,400

other customer transactions processed

Totals

Required:
1. Compute the activity rates for the activity-based costing system. (Round your answers to 2 decimal
places.)