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:?

Answer 1

Values not given In question :-

I Give a Question and That Answer for your Help.

Question :-

Activity	Activity Cost Pool
Production	$650000
Setup	210000
Moving	50000
Shipping	144000
Product Engineering	180000
Total	1234000

The activity Bases identified for each activity are as follows :-

Activity	Activity Base
Production	Machine Hours
Setup	No. of Setups
Moving	No. of Moves
Shipping	No. of Customer orders
Product Engineering	No. of Test runs

The Activity Base usage quantities and units produced for the three products were determined from Corporate

records and are as follows :-

	Machine Hours	No. of Setups	No. of Moves	No. of Customer orders	No. of Test runs	Units
Computer Paper	1750	200	500	700	150	2250
Newsprint	2000	100	200	250	50	2500
Specialty Paper	1250	400	550	850	200	1750
Total	5000	700	1250	1800	400	6500

Each product requires 0.8 machine hour per unit.

Required :-

1. Determine the activity rate for each activity.

2. Determine the total and per unit activity cost of Computer Paper.

SOLUTION :-

1) Activity Rate for each activity.

Activity	Activity Rate
Production ($650000 / 5000)	$130 per MH
Setup ($210000 / 700)	$300 per Setup
Moving ($50000 / 1250)	$40 per Move
Shipping ($144000 / 1800)	$80 per Cust. Order
Product Engineering ($180000 / 400)	$450 per Test run

2) Total and Per Unit Activity Cost of Computer Paper

Activity	(Activity Base * Activity Rate)	Activity Cost
Production	(1750 * $130)	$227500
Setup	(200 * $300)	$60000
Moving	(500 * $40)	$20000
Shipping	(700 * $80)	$56000
Product engineering	(150 * $450)	$67500
Total Activity Cost		$431000

Per Unit Activity Cost :-

= Total Activity Cost / No. of Units

= $431000 / 2250

= $191.56