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:

Required:

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

1. Determine the activity rate for each activity.

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

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

Chapter 18 Homework 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 Production Setup Materials 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: Chapter 18 Homework 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: Number of Number of Machine Number of Number of Inspection Engineering Hours Setups Parts Hours Units Alpha 1,440 65 400 125 1,800 1,080 165 300 1,350 Omega 720 310 500 3,240 550 325 1,200 4,050 Hours 75 Beta 80 175 180 140 900 Total 440 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 aren't 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