Two-Stage ABC for Manufacturing Assume Sherwin-Williams Company, a large paint m
ID: 2333187 • Letter: T
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 Driver
2,500 setup hours
5,000 material moves
20,000 machine hours
The following data are for the production of single batches of two products, Mirlite and Subdue:
Determine the batch and unit costs per gallon of Mirlite and Subdue using ABC.
Round cost per gallon to two decimal places.
Mirlite
Subdue
Activity Cost Pool Activity CostActivity Cost Driver
Machine setup $990,0002,500 setup hours
Material handling 860,0005,000 material moves
Machine operation 200,00020,000 machine hours
Explanation / Answer
Answer
Activity Cost Pool
Activity Cost
Activity Cost Driver
Activity Rate per driver
Machine setup
$ 990,000.00
2,500
$ 396.00 per setup hrs
Material handling
$ 860,000.00
5,000
$ 172.00 per material move
Machine operation
$ 200,000.00
20,000
$ 10.00 per machine hour
Product Costs
Mirlite
Subdue
Direct materials
$ 390,000.00
$ 190,000.00
Direct labor
$ 10,500.00
$ 8,000.00
Manufacturing overhead:
Machine setups
$ 5,940.00
$ 4,752.00
Material handling
$ 10,320.00
$ 6,020.00
Machine operation
$ 8,000.00
$ 2,500.00
Total cost per batch
$ 424,760.00
$ 211,272.00
Gallons produced
50,000
30,000
Cost per gallon
$ 8.50
$ 7.04
Product Costs
Mirlite
Subdue
Direct materials
390000
190000
Direct labor
10500
8000
Manufacturing overhead:
Machine setups
=15*396
=12*396
Material handling
=60*172
=35*172
Machine operation
=800*10
=250*10
Total cost per batch
Total (A)
Total (A)
Gallons produced
50000 (B)
30000 (B)
Cost per gallon
A / B
A / B
Activity Cost Pool
Activity Cost
Activity Cost Driver
Activity Rate per driver
Machine setup
$ 990,000.00
2,500
$ 396.00 per setup hrs
Material handling
$ 860,000.00
5,000
$ 172.00 per material move
Machine operation
$ 200,000.00
20,000
$ 10.00 per machine hour
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