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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	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.

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