Activity-Based Product Costing Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and
Question:
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 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 .
Managerial Accounting
ISBN: 978-1337270595
14th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac