Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the 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 as follows: 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 the three products were determined from corporate records and are as follows: 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 and per-unit activity costs associated with all three products.* 3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit? *If required, round all per-unit amounts to the nearest cent.

Name: Mello Manufacturing Company is a diversified manufacturer that manufac
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Description: Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The control

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 4PA: Activity-based product costing Mello Manufacturing Company is a diversified manufacturer that...

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Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the 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 as follows:

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 the three products were determined from corporate records and are as follows:


	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 and per-unit activity costs associated with all three products.*
3.	Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?
	*If required, round all per-unit amounts to the nearest cent.

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