Mello Manufacturing Company is a diversified manufacturer thatmanufactures three products (Alpha, Beta, and Omega) in acontinuous production process. Senior management has asked thecontroller to conduct an activity-based costing study. Thecontroller identified the amount of factory overhead required bythe critical activities of the organization as follows:
1 | Activity | Activity Cost Pool |
2 | Production | $270,840.00 |
3 | Setup | 98,945.00 |
4 | Material handling | 10,604.00 |
5 | Inspection | 44,100.00 |
6 | Product engineering | 139,380.00 |
7 | Total | $563,869.00 |
The activity bases identified for each activity are asfollows:
Activity | Activity Base |
| Production | Machine hours |
| Setup | Number of setups |
| Material handling | Number of parts |
| Inspection | Number of inspection hours |
| Product engineering | Number of engineering hours |
The activity-base usage quantities and units produced for thethree products were determined from corporate records and are asfollows:
|
| Machine | Number of | Number of | Number of | Number of | |
| Hours | Setups | Parts | Inspection Hours | Engineering Hours | Units |
| Alpha | 1,061 | 55 | 84 | 467 | 130 | 1,341 |
| Beta | 767 | 125 | 158 | 281 | 183 | 927 |
| Omega | 392 | 205 | 240 | 232 | 192 | 542 |
| Total | 2,220 | 385 | 482 | 980 | 505 | 2,810 |
Each product requires 40 minutes per unit of machine time.
| Required: |
| Complete the Activity Tables for Alpha, Beta and Omega.| 1. | Determine the activity rate for each activity.* | | 2. | Use the activity rates in (1) to determine the total andper-unit activity costs associated with all three products.* | | 3. | Why aren’t the activity unit costs equal across all threeproducts since they require the same machine time per unit? | | *If required, round all per-unit amounts to the nearestcent. |
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