Chapter 4, Problem 4PA

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:

The activity bases identified for each activity are as follows:

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Each product requires 40 minutes per unit of machine time.

Instructions

Determine the activity rate for each activity.

Determine the total and per-unit activity cost for all three products. Round to nearest cent.

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