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	$257,600.00
3	Setup	89,775.00
4	Material handling	8,388.00
5	Inspection	50,400.00
6	Product engineering	142,830.00
7	Total	$548,993.00

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	1,093	61	75	459	134	1,259
Beta	779	121	142	327	190	1,076
Omega	368	217	249	264	205	476
Total	2,240	399	466	1,050	529	2,811

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.

Complete the Activity Table for Alpha.

	1. Determine the activity rate for each activity. Enter these rates in the Activity Rate columns.*
	2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with Alpha.*
	*If required, round all per-unit amounts to the nearest cent.

	Alpha
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Production
Setup
Material handling
Inspection
Product Engineering
Total activity cost
Number of units
Activity cost per unit

Complete the Activity Table for Beta.

1.	Determine the activity rate for each activity. Enter these rates in the Activity Rate columns.*
2.	Use the activity rates in (1) to determine the total and per-unit activity costs associated with Beta.*
	*If required, round all per-unit amounts to the nearest cent.

	Beta
Activity	Activity-
	Base		Activity		Activity
	Usage	X	Rate	=	Cost
Production
Setup
Material handling
Inspection
Product Engineering
Total activity cost
Number of units
Activity cost per unit

Complete the Activity Table for Omega.

1.	Determine the activity rate for each activity. Enter these rates in the Activity Rate columns.*
2.	Use the activity rates in (1) to determine the total and per-unit activity costs associated with Omega.*
	*If required, round all per-unit amounts to the nearest cent.

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

The difference is due to product cost distortions.

The difference is due to machine inefficiencies.

The difference is because the products consume many activities in ratios different from the volume.