Two-Stage ABC for Manufacturing with ABC Variances Montreat Manufacturing has de
ID: 2468734 • Letter: T
Question
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.
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
Explanation / Answer
a. Unit cost of each product for Montreat Manufacturing:
b. The unit cost of the speciality products is higher than the standard products because of
Standard Product A Standard Product B Speciality Products Direct materials costs $ 900,000 $ 600,000 $ 820,000 Purchases and materials handling $ 480,000 $ 360,000 $ 240,000 Setups $ 187,500 $ 287,500 $ 562,500 Machine operations $ 489,000 $ 244,500 $ 163,000 First unit inspection $ 5,000 $ 4,000 $ 30,000 Packaging $ 157,020 $ 104,680 $ 52,340 Total cost $ 2,218,520 $ 1,600,680 $ 1,867,840 Number of units 150,000 100,000 50,000 Cost per unit $ 14.79 $ 16 $ 37.36Related Questions
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