Question

PR 18-4A Activity-based product costing Obj. 4 2. Alpha total activity Mello Manufacturing Company is a diversified manufacturer that manufactures three products cost, $160,450 (Alpha, Beta, and Omega) in a continuous production process. Senior n 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: EXCEL TEMPLATE Activity Production Setup Material handling Inspection Product engineering Total Activity Cost Pool $259,200 55.000 9.750 60,000 123,200 $507,150 The activity bases identified for each activity are as follows: Activity Production Setup Material handling Inspection Product engineering Activity Base Machine hours Number of setups Number of parts Number of inspection hours Number of engineering hours (Continued)

Answer 1

1.

Activity	Activity Cost Pool	Total Activity Base Usage	Activity Rate
Production	259200	3240	80
Setup	55000	550	100
Material handling	9750	325	30
Inspection	60000	1200	50
Product engineering	123200	440	280

2.

Activity	Activity Rate	Alpha		Beta		Omega
		Acivity-Base Usage	Activity Cost	Acivity-Base Usage	Activity Cost	Acivity-Base Usage	Activity Cost
Production	80	1440	115200	1080	86400	720	57600
Setup	100	75	7500	165	16500	310	31000
Material handling	30	65	1950	80	2400	180	5400
Inspection	50	400	20000	300	15000	500	25000
Product engineering	280	125	35000	175	49000	140	39200
Total activity cost $			179650		169300		158200
Number of units			1800		1350		900
Per-unit activity cost $			99.81		125.41		175.78

3. Though all three products require the same machine time, the activity unit costs are not equal because machine hours is not used for allocating all the activity costs but a different cost driver is used for each of the activity cost pools and the usage of each cost driver by all three products is different.