Problems 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 Cost Period $259,200 55,000 Activity Production Setup Material handling 9,750 Inspection Product engineering 60,000 123,200 Total 507,150 The activity bases identified for each activity are as follows: Activity Production Activity Base Machine hours Number of setups Setup Material handling Number of parts Inspection Product engineering Number of engineering hours Number of inspection hours 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 Number of Inspection Engineering Setups Machine Product Hours Parts Hours 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 40 minutes per unit of machine time. Instructions on the next page a. Determine the activity rate for each activity. b. Determine the total and per-unit activity cost for all three products. Round to nearest cent. c. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Problems 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 Cost Period $259,200 55,000 Activity Production Setup Material handling 9,750 Inspection Product engineering 60,000 123,200 Total 507,150 The activity bases identified for each activity are as follows: Activity Production Activity Base Machine hours Number of setups Setup Material handling Number of parts Inspection Product engineering Number of engineering hours Number of inspection hours 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 Number of Inspection Engineering Setups Machine Product Hours Parts Hours 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 40 minutes per unit of machine time. Instructions on the next page a. Determine the activity rate for each activity. b. Determine the total and per-unit activity cost for all three products. Round to nearest cent. c. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 4PA: Activity-based product costing Mello Manufacturing Company is a diversified manufacturer that...
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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
Transcribed Image Text:Problems
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 Cost Period
$259,200
Activity
Production
Setup
Material handling
55,000
9,750
Inspection
Product engineering
60,000
123,200
Total
507,150
The activity bases identified for each activity are as follows:
Activity
Activity Base
Production
Machine hours
Number of setups
Setup
Material handling Number of parts
Inspection
Product engineering Number of engineering hours
Number of inspection hours
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 Engineering
Hours
Machine
Number of
Product
Hours
Setups
Parts
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 40 minutes per unit of machine time.
Instructions on the next page
a. Determine the activity rate for each activity.
b. Determine the total and per-unit activity cost for all three
products. Round to nearest cent.
c. Why aren't the activity unit costs equal across all three
products since they require the same machine time per
unit?
Expert Solution
Step 1
Activity-based costing: It is a method to allocate the overheads cost of production to the different products manufactured depending upon the activity cost drivers usage by each product.
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