Question

Two-Stage ABC for Manufacturing Assume Sherwin-Williams Company, a large paint manufacturer, has determined the following activity cost pools and cost driver levels for the latest period: Activity Cost Pool Activity Cost Activity Cost Driver Machine setup $900,000 2,500 setup hours Material handling 820,000 4,000 material moves Machine operation 400,000 20,000 machine hours The following data are for the production of single batches of two products, Mirlite and Subdue: Mirlite Subdue Gallons produced 60,000 25,000 Direct labor hours 400 250 Machine hours 800 250 Direct labor cost $10,000 $7,500 Direct materials cost $360,000 $150,000 Setup hours 15 12 Material moves 60 35

Answer 1

Product costs
	Mirlite	subdue
Direct materials	$360,000	$150,000
Direct labor	$10,000	$7,500
Manufacturing Overhead
Machine setups	$5,400	$4,320
Machine handling	$12,300	$7,175
Machine operation	$16,000	$5,000
Total cost per batch	$403,700	$173,995
Gallons Produced	60000	25000
Cost per gallon	$6.73	$6.96

Working Notes:

Activity	Cost pool	Cost Drivers	Drivers	ABC Rate
Machine setup	$900,000	Setup hours	2500	$360
Machine handling	$820,000	Material moves	4000	$205
Machnie operation	$400,000	machine hours	20000	$20

	Mirlite	subdue
No of setups hours	15	12
Cost per hour	$360	$360
Machine setups	$5,400	$4,320
No of material moves	60	35
Cost per move	$205	$205
Machine handling	$12,300	$7,175
No of machine hours	800	250
Cost per hour	$20	$20
Machine operation	$16,000	$5,000