Question

Instructions 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 controllor 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 Activity 7 Production 1 Setup . Material handling Inspection Product engineering Total Activity Cost Pool $259,200.00 55,000.00 9,750.00 60,000.00 123,200.00 $507,150.00 1 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setur 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 Alpha 1,440 75 65 Inspection Hours Engineering Hours Units 400 125 1,800 300 175 1,350 Beta 1,080 165 ВО 720 310 180 500 140 900 Omega Total 3,240 550 325 1,200 440 4,050 Each product requires 40 minutes per unit of machine time,

Answer 1

				Alpha
		Base			Activity			Activity
Activity		usage		*	rate		=	cost
Production		1,440	mh		80	/mh	=	115200
Setup		75	setups		100	/setups	=	7500
Material handling		65	parts		30	/parts	=	1950
Inspection		400	insp.hours		50	/insp.hrs	=	20000
product engineering		125	eng. Hours		280	/eng.hrs	=	35000
Total activity cost								179650
number of units								1,800
Activity cost per unit								99.81
where activity rate =activity cost pool/total base usage
				Beta
		Base			Activity			Activity
Activity		usage		*	rate		=	cost
Production		1,080	mh		80	/mh	=	86400
Setup		165	setups		100	/setups	=	16500
Material handling		80	parts		30	/parts	=	2400
Inspection		300	insp.hours		50	/insp.hrs	=	15000
product engineering		175	eng. Hours		280	/eng.hrs	=	49000
Total activity cost								169300
number of units								1,350
Activity cost per unit								125.41
				Omega
		Base			Activity			Activity
Activity		usage		*	rate		=	cost
Production		720	mh		80	/mh	=	57600
Setup		310	setups		100	/setups	=	31000
Material handling		180	parts		30	/parts	=	5400
Inspection		500	insp.hours		50	/insp.hrs	=	25000
product engineering		140	eng. Hours		280	/eng.hrs	=	39200
Total activity cost								158200
number of units								900
Activity cost per unit								175.78
3)	The difference is because the products consume many activities in ratios different
	from the volume