Two-Stage ABC for Manufacturing

Detroit Foundry, a large manufacturer of heavy equipment components, has determined the follow-

ing activity cost pools and cost driver levels for the year:

Activity Cost Pool Activity Cost Activity Cost Driver

Machine setup. . . . . . . . . . . . . . . . . . . $660,000 12,000 setup hours

Material handling. . . . . . . . . . . . . . . . . 100,000 2,000 tons of materials

Machine operation . . . . . . . . . . . . . . . 450,000 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 .................................................$5,000 $10,000

Direct materials cost...........................................$30,000 $20,000

Tons of materials...................................................12.5 8

Setup hours..............................................................3 7

Required

Determine the unit costs of C23 Cams and U2 Shafts using ABC.