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 $237,552.00 3 Setup 93,660.00 4 Material handling 10,500.00 5 Inspection 53,185.00 6 Product engineering 156,755.00 7 Total $551,652.00 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 1,000 62 82 458 133 1,137 Beta 733 121 147 270 187 1,057 Omega 388 237 271 239 215 474 Total 2,121 420 500 967 535 2,668 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. Activity Table - Alpha 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 Activity Table - Beta 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 Activity Table - Omega 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. Omega 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 Final Question 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 because the products consume many activities in ratios different from the volume. The difference is due to machine inefficiencies.
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 $237,552.00 3 Setup 93,660.00 4 Material handling 10,500.00 5 Inspection 53,185.00 6 Product engineering 156,755.00 7 Total $551,652.00 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 1,000 62 82 458 133 1,137 Beta 733 121 147 270 187 1,057 Omega 388 237 271 239 215 474 Total 2,121 420 500 967 535 2,668 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. Activity Table - Alpha 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 Activity Table - Beta 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 Activity Table - Omega 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. Omega 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 Final Question 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 because the products consume many activities in ratios different from the volume. The difference is due to machine inefficiencies.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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:
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1
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Activity
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Activity Cost Pool
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2
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Production
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$237,552.00
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3
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Setup
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93,660.00
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4
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Material handling
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10,500.00
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5
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Inspection
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53,185.00
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6
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Product engineering
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156,755.00
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7
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Total
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$551,652.00
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The activity bases identified for each activity are as follows:
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Activity
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Activity Base
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| 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 | 1,000 | 62 | 82 | 458 | 133 | 1,137 |
| Beta | 733 | 121 | 147 | 270 | 187 | 1,057 |
| Omega | 388 | 237 | 271 | 239 | 215 | 474 |
| Total | 2,121 | 420 | 500 | 967 | 535 | 2,668 |
Each product requires 40 minutes per unit of machine time.
| Required: | |||||||||
Complete the Activity Tables for Alpha, Beta and Omega.
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Activity Table - Alpha
Complete the Activity Table for Alpha.
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| Activity | Activity- | ||||
| Base | Activity | Activity | |||
| Usage | X | Rate | = | Cost | |
| Production |
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| Setup |
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| Material handling |
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| Inspection |
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| Product Engineering |
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| Total activity cost |
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| Number of units |
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| Activity cost per unit |
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Activity Table - Beta
Complete the Activity Table for Beta.
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| Beta | |||||
| Activity | Activity- | ||||
| Base | Activity | Activity | |||
| Usage | X | Rate | = | Cost | |
| Production |
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| Inspection |
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| Product Engineering |
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| Total activity cost |
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| Number of units |
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| Activity cost per unit |
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Activity Table - Omega
Complete the Activity Table for Omega.
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| Omega | |||||
| Activity | Activity- | ||||
| Base | Activity | Activity | |||
| Usage | X | Rate | = | Cost | |
| Production |
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| Setup |
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| Material handling |
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| Inspection |
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| Total activity cost |
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Final Question
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 because the products consume many activities in ratios different from the volume.
The difference is due to machine inefficiencies.
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