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

Determine the batch and unit costs per gallon of Mirlite and Subdue using ABC.
Round cost per gallon to two decimal places.

Product Costs
	Mirlite	Subdue
Direct materials	Answer	Answer
Direct labor	Answer	Answer
Manufacturing overhead:
Machine setups	Answer	Answer
Material handling	Answer	Answer
Machine operation	Answer	Answer
Total cost per batch	Answer	Answer
Gallons produced	Answer	Answer
Cost per gallon	Answer	Answer

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
Material 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

Activity	Total Overhead	Cost Driver	Total Number	Cost per Cost Driver
a	b	c	d	e = b/d
Machine Setup	$   900,000	Setup Hours	2500	$           360	Per Setup Hour
Material Handling	$   820,000	Material Moves	4000	$           205	Per Material Move
Machine Operation	$   400,000	Machine Hours	20000	$             20	Per Machine Hour
	$2,120,000