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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 Production Setup Materials handling Inspection Product engineering Total Activity Production The activity bases identified for each activity are as follows: Setup Materials handling Inspection Product engineering Alpha Beta Omega The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Number of Number of Number of Inspection Setups Parts Hours 400 300 500 1,200 Machine Hours 1,440 1,080 Total Activity Cost Pool $259,200 55,000 9,750 60,000 Machine hours Number of setups Number of parts Number of inspection hours Number of engineering hours 75 Activity Base 65 80 720 180 3,240 325 Each product requires 40 minutes per unit of machine time. 123,200 $507,150 165 310 550 Number of Engineering Hours Units 1,800 1,350 900 4,050 125 175 140 440

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 Production Setup Materials handling Inspection Product engineering Total Activity Production The activity bases identified for each activity are as follows: Setup Materials handling Inspection Product engineering Alpha Beta Omega The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Number of Number of Number of Inspection Setups Parts Hours 400 300 500 1,200 Machine Hours 1,440 1,080 Total Activity Cost Pool $259,200 55,000 9,750 60,000 Machine hours Number of setups Number of parts Number of inspection hours Number of engineering hours 75 Activity Base 65 80 720 180 3,240 325 Each product requires 40 minutes per unit of machine time. 123,200 $507,150 165 310 550 Number of Engineering Hours Units 1,800 1,350 900 4,050 125 175 140 440

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 Production Setup Materials handling Inspection Product engineering Total The activity bases identified for each activity are as follows: Activity Production Setup Materials handling Inspection Product engineering The activity-base usage Alpha Beta Omega Total Machine Hours 1,440 1,080 720 3,240 Activity Cost Pool $259,200 55,000 9,750 60,000 123,200 $507,150 Machine hours Number of setups Number of parts Number of inspection hours Number of engineering hours 75 quantities and units produced for the three products were determined from corporate records and are as follows: Number of Number of Inspection Number of Setups Parts Hours 165 310 Activity Base 550 325 Each product requires 40 minutes per unit of machine time. Required: 65 80 180 400 300 500 1,200 Number of Engineering Hours 125 175 140 440 Units 1,800 1,350 900 4,050
Transcribed Image Text: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 Production Setup Materials handling Inspection Product engineering Total The activity bases identified for each activity are as follows: Activity Production Setup Materials handling Inspection Product engineering The activity-base usage Alpha Beta Omega Total Machine Hours 1,440 1,080 720 3,240 Activity Cost Pool $259,200 55,000 9,750 60,000 123,200 $507,150 Machine hours Number of setups Number of parts Number of inspection hours Number of engineering hours 75 quantities and units produced for the three products were determined from corporate records and are as follows: Number of Number of Inspection Number of Setups Parts Hours 165 310 Activity Base 550 325 Each product requires 40 minutes per unit of machine time. Required: 65 80 180 400 300 500 1,200 Number of Engineering Hours 125 175 140 440 Units 1,800 1,350 900 4,050
Omega 720 180 3,240 325 Each product requires 40 minutes per unit of machine time. Total Production Required: If required, round all per unit amounts to the nearest cent. 1. Determine the activity rate for each activity. Setup Materials handling Inspection Product engineering 310 Alpha per machine hour per setup per part per inspection hour $ per engineering hour 2. Determine the total and per-unit activity cost for all three products. Total Activity Cost Beta 550 Feedback 500 1,200 $ Activity Cost Per Unit 140 440 900 4,050 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 volume Check My Work 1. Calculate Activity Rate for each activity: Budgeted Activity Cost Total Activity-Base Usage = Activity Rate 2. Calculate Activity Cost for each product: Activity-Base Usage x Activity rate from Req. (1) = Activity cost; Sum all activity costs per product to determine a total and divide the total overhead by budgeted units to derive the activity costs per unit for each product.
Transcribed Image Text:Omega 720 180 3,240 325 Each product requires 40 minutes per unit of machine time. Total Production Required: If required, round all per unit amounts to the nearest cent. 1. Determine the activity rate for each activity. Setup Materials handling Inspection Product engineering 310 Alpha per machine hour per setup per part per inspection hour $ per engineering hour 2. Determine the total and per-unit activity cost for all three products. Total Activity Cost Beta 550 Feedback 500 1,200 $ Activity Cost Per Unit 140 440 900 4,050 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 volume Check My Work 1. Calculate Activity Rate for each activity: Budgeted Activity Cost Total Activity-Base Usage = Activity Rate 2. Calculate Activity Cost for each product: Activity-Base Usage x Activity rate from Req. (1) = Activity cost; Sum all activity costs per product to determine a total and divide the total overhead by budgeted units to derive the activity costs per unit for each product.
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