Question

Two-Stage ABC for Manufacturing
Detroit Foundry, a large manufacturer of heavy equipment components, has determined the following activity cost pools and cost driver levels for the year:

Activity Cost Pool	Activity Cost	Activity Cost Driver
Machine setup	$588,000	12,000 setup hours
Material handling	108,000	2,000 material moves
Machine operation	500,000	10,000 machine hours

The following data are for the production of single batches of two products, C23 Cams and U2 Shafts during the month of August:

	C23 Cams	U2 Shafts
Units produced	500	300
Machine hours	4	5
Direct labor hours	200	400
Direct labor cost	$4,000	$9,000
Direct materials cost	$29,000	$19,000
Tons of materials	13	8
Setup hours	3	7

Determine the unit costs of C23 Cams and U2 Shafts using ABC.
Round cost per gallon to two decimal places.

Product Costs
	C23 Cams	U2 Shafts
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Machine setups	Answer	Answer
Material handling	Answer	Answer
Machine operation	Answer	Answer
Total job costs	Answer	Answer
Units produced	Answer	Answer
Cost per unit produced	Answer	Answer

Answer 1

Answer-

DETROIT FOUNDRY
PRODUCT COSTS PER UNIT
ACTIVITY BASED COSTS METHOD
Products	C23 Cams	U2 Shafts
	$	$
Direct materials	29000	19000
Direct labor	4000	9000
Manufacturing Overhead:
Machine setups	3 set ups*$49 per setup =147	7 set ups*$49 per setup =343
Material handling	13 tons of material*$54 =702	8 tons of material*$54 =432
Machine operations	4 hours*$50 per hour =200	5 hours*$50 per hour =250
Total job costs (a)	34049	29025
Units produced (b)	500	300
Cost per unit produced (c=a/b)	68.10	96.75

Explanation-

Calculation of activity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Machine set ups	No. of setups	588000	12000	$49 per setup
Machine handling	Tons of materials	108000	2000	$54 per ton of materials
Machine operations	Machine hours	500000	10000	$50 per hour
	Total	1196000