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	$251,598.00
3	Setup	92,035.00
4	Material handling	10,736.00
5	Inspection	49,833.00
6	Product engineering	136,230.00
7	Total	$540,432.00

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	970	63	84	489	123	1,354
Beta	802	123	138	272	170	1,044
Omega	435	209	266	256	185	452
Total	2,207	395	488	1,017	478	2,850

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 - Alpha

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Complete the Activity Table for Alpha. 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 Alpha.* *If required, round all per-unit amounts to the nearest cent.

	Alpha
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Production
Setup
Material handling
Inspection
Product Engineering
Total activity cost
Number of units
Activity cost per unit

Points:

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Calculate for each activity:

Total Activity Cost ÷ Total Activity-Base Usage = Activity Rate

Calculate for each product:

Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per product to determine a total and divide the total overhead by budgeted units to derive the activity costs per unit for each product.

Activity Table - Beta

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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	X	Rate	=	Cost
Production
Setup
Material handling
Inspection
Product Engineering
Total activity cost
Number of units
Activity cost per unit

Points:

0 / 28

Feedback

Check My Work

Calculate for each activity:

Total Activity Cost ÷ Total Activity-Base Usage = Activity Rate

Calculate for each product:

Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per product to determine a total and divide the total overhead by budgeted units to derive the activity costs per unit for each product.

Activity Table - Omega

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Complete the Activity Table for Omega. 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 Omega.* *If required, round all per-unit amounts to the nearest cent.

	Omega
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Production
Setup
Material handling
Inspection
Product Engineering
Total activity cost
Number of units
Activity cost per unit

Answer 1

1. Production Materials Handling Total activity cost Divided by total activity base Activity rate 251,598 2.207 114.00 Setup S 92,035 395 S 233.00 Inspection $ 49.833 1,017 S 49.00 Engineering 136,230 478 285.00 mh mh 488 S 22.00 setups /setup eng hours insp. hours /hour S no. parts part /hour 2. Alpha Omega Activity Production Setup Material handling Inspection Engineering Total Number of units Activity cost per unit Activity Base Usage 970 63 84 489 123 mh setups parts insp. hours eng hours Activity Rate S114.00 $233.00 $22.00 $49.00 $285.00 Activity Cost $110,580 14,679 1,848 23,961 35,055 S186.123 1,354 S 137.46 Beta Activity Activity Base Usage Rate 802 mh S114.00 123 setups $233.00 138 parts $22.00 272 insp. hours $49.00 170 $285.00 Activity Cost S 91.428 28.659 3,036 13,328 48,450 S 184.901 1,044 S 177.11 Activity Base Usage 435 209 266 256 185 mh setups parts insp. hours Activity Rate S114.00 $233.00 $22.00 $49.00 $285.00 Activity Cost S 49,590 48,697 5,852 12,544 52,725 S 169,408 452 S 374.80 eng hours eng hours 3. The unit costs are different even though each product requires same machine hour because the products consume many activities in ratios different from the volume. For example, the Omega consumes setup. moving, shipping, and product engineering activities proportionately greater than its volume, while the Alpha consumes the same activities proportionately less than its volume.