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 $237,552.00 3 Setup 93,660.00 4 Material handling 10,500.00 5 Inspection 53,185.00 6 Product engineering 156,755.00 7 Total $551,652.00 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 1,000 62 82 458 133 1,137 Beta 733 121 147 270 187 1,057 Omega 388 237 271 239 215 474 Total 2,121 420 500 967 535 2,668 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	$237,552.00
3	Setup	93,660.00
4	Material handling	10,500.00
5	Inspection	53,185.00
6	Product engineering	156,755.00
7	Total	$551,652.00

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	1,000	62	82	458	133	1,137
Beta	733	121	147	270	187	1,057
Omega	388	237	271	239	215	474
Total	2,121	420	500	967	535	2,668

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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