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Activity-Based Product Costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management

Activity-Based Product Costing

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:

Activity Activity Cost Pool
Production $259,200
Setup 55,000
Materials handling 9,750
Inspection 60,000
Product engineering 123,200
Total $507,150

The activity bases identified for each activity are as follows:

Activity Activity Base
Production Machine hours
Setup Number of setups
Materials 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 Hours Number of Setups Number of Parts Number of Inspection Hours Number of Engineering Hours Units
Alpha 1,440 75 65 400 125 1,800
Beta 1,080 165 80 300 175 1,350
Omega 720 310 180 500 140 900
Total 3,240 550 325 1,200 440 4,050

Each product requires 48 minutes per unit of machine time.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

Production $ per machine hour
Setup $ per setup
Materials handling $ per part
Inspection $ per inspection hour
Product engineering $ per engineering hour

2. Determine the total and per-unit activity cost for all three products.

Total Activity Cost Activity Cost Per Unit
Alpha $ $
Beta
Omega

3. Why arent the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the .

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