Two Stage ABC for Manufacturing

Assume Sherwin-Williams Company, a large paint manufacturer, has determined the following activity costs pools and cost driver levels for the latest period:

Activity Cost Pool Activity Cost Activity Cost Driver

Machine setup $950,000 2,500 setup hours

Material handling 520,000 5,000 materials moves

Machine operation 200,000 20,000 machine hours

The following data are for the production of single batches of two products, Mirlite and Subdue:

Mirlite Subdue

Gallons purchased 30,000 20,000

Direct labor hours 500 250

Machine hours 800 350

Direct labor cost $10,000 $7,500

Direct materials cost $350,000 $150,000

Setup hours 15 12

Material moves 40 35

Determine unit costs per gallon of Mirlite and Subdue using ABC.