Two-Stage ABC for Manufacturing with ABC Variances

Montreat Manufacturing has developed the following activity cost pool information for its 2014 manufacturing activities:

	Budgeted Activity Cost	Activity Cost Driver at Practical Capacity
Purchasing and materials handling	$1,080,000	900,000 kilograms
Setup	700,000	1,120 setups
Machine operations	978,000	12,000 hours
First unit inspection	50,000	1,000 batches
Packaging	327,125	312,500 units

Actual 2014 production information is as follows:

	Standard Product A	Standard Product B	Specialty Products
Units	150,000	100,000	50,000
Batches	100	80	600
Setups*	300	460	900
Machine operations (hours)	6,000	3,000	2,000
Kilograms of raw materials	400,000	300,000	200,000
Direct materials costs	$900,000	$600,000	$820,000

Required:

a.- Determine the unit cost of each product for the Montreat Manufacturing.

b.- Explain why the unit cost of the specialty products is so much higher than the unit cost of Standard product A or Standard Product B.