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

Material 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

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:

Each product requires 40 minutes per unit of machine time.

Instructions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products. Round to nearest cent.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?

Transcribed Image Text:

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