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.

Answer 1