Question

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	$238,830.00
3	Setup	96,585.00
4	Material handling	9,660.00
5	Inspection	52,364.00
6	Product engineering	171,622.00
7	Total	$569,061.00

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	901	62	73	428	134	1,245
Beta	773	117	156	313	191	918
Omega	421	232	254	247	213	520
Total	2,095	411	483	988	538	2,683

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.

Activity Table - Beta Complete the Activity Table for Beta. 1. Determine the activity rate for each activity. Enter these rates in the Activity Rate columns. 2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with Beta.* *If required, round all per-unit amounts to the nearest cent. Beta Activity- Activity Base Activity Activity Usage Rate Cost Production Setup Material handling Inspection Product Engineering Total activity cost Number of units Activity cost per unit

Answer 1

Answer

For Alpha

Activity	Usage			Activity Rate			Activity Cost
Production	901	mh	X	$ 114	per mh	=	$    102,714
Setup	62	setups	X	$ 235	per setup	=	$      14,570
Material handling	73	parts	X	$   20	per part	=	$        1,460
Inspection	428	insp hours	X	$   53	per insp hour	=	$      22,684
Product engineering	134	eng hours	X	$ 319	per eng hour	=	$      42,746
Total activity cost							$    184,174
Total units							1245
Activity cost per unit							$      147.93

For Beta

Activity	Usage			Activity Rate			Activity Cost
Production	773	mh	X	$ 114	per mh	=	$      88,122
Setup	117	setups	X	$ 235	per setup	=	$      27,495
Material handling	156	parts	X	$   20	per part	=	$        3,120
Inspection	313	insp hours	X	$   53	per insp hour	=	$      16,589
Product engineering	191	eng hours	X	$ 319	per eng hour	=	$      60,929
Total activity cost							$    196,255
Total units							918
Activity cost per unit							$      213.79

For Omega

Activity	Usage			Activity Rate			Activity Cost
Production	421	mh	X	$ 114	per mh	=	$      47,994
Setup	232	setups	X	$ 235	per setup	=	$      54,520
Material handling	254	parts	X	$   20	per part	=	$        5,080
Inspection	247	insp hours	X	$   53	per insp hour	=	$      13,091
Product engineering	213	eng hours	X	$ 319	per eng hour	=	$      67,947
Total activity cost							$    188,632
Total units							520
Activity cost per unit							$      362.75

Calculations:

Activity	Activity Rate
Production	=$238,830 / 2,095	per mh
Setup	=$96,585 / 411	per setup
Material handling	=$9,660/ 483	per part
Inspection	=$52,364 / 988	per insp hour
Product engineering	=$171,622 / 538	per eng hour

In case of any doubt, please comment.