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 $576,000 12,000 setup hours Material handling 96,000 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 $3,000 $8,000 Direct materials cost $28,000 $18,000 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.

DETROIT FOUNDRY

                          Cost per gallon

                                                 C23               U2

Unit  produced                         500                300

Direct labor cost                       $3,000             $8,000

Direct materials cost                28,000            18,000

machine set up cost                      144                  336

material handling cost                  624                  384

Machine operating cost                200                 250

Total cost                                    31,968              26,970

cost per gallon :

C23   =   $31,968/500 = $63.94

U2     =   $26,970/300 = $89.9

workings

machine set up per set up hour = $576,000/12,000  =  $48

Material handling per material move =  $96,000/2000 =$48

Machine operation per machine hour =  $500,000/10,000 = $50

Explanation:

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