Question

Two-Stage ABC for Manufacturing
Columbus 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	$600,000	12,000 setup hours
Material handling	180,000	2,000 tons of materials
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:

	C23 Cams	U2 Shafts
Units produced	500	200
Machine hours	5	5
Direct labor hours	400	500
Direct labor cost	$5,000	$10,000
Direct materials cost	$30,000	$20,000
Tons of materials	12.5	8
Setup hours	4	5

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

U2 Shafts $Answer

Answer 1

Solution:

Computation of Activity rates
Cost Pool	Cost assigned	Total activity level	Activity rate
Machine setup	$6,00,000	12000	$50.00
Material handling	$1,80,000	2000	$90.00
Machine operation	$5,00,000	10000	$50.00

Computation of Overhead assigned to products
	C23 Cams			U2 Shafts
Activity cost pool	Activity level used	Activity rate	Cost assigned	Activity level used	Activity rate	Cost assigned
Machine setup	4	50.00	$200	5	50.00	$250
Material handling	12.5	90.00	$1,125	8	90.00	$720
Machine operation	5	50.00	$250	5	50.00	$250
Total Overhead cost assigned			$1,575			$1,220

Computation of Unit costs
	C23 Cams	U2 Shafts
Direct Materials	$30,000	$20,000
Direct labor	$5,000	$10,000
Overhead Costs	$1,575	$1,220
Total Costs	$36,575	$31,220
/ Units produced	500	200
Unit cost	$73.15	$156.10