Question

Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:

Overhead costs:

Equipment depreciation	$	110,000
Supervisory expense	$	6,900

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.40	0.30		0.30
Supervisory expense	0.40	0.20		0.40

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	5,570	180
Product M0	18,400	990
Total	23,970	1,170

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	76,500	$	67,100
Direct materials (total)	$	33,000	$	16,000
Direct labor (total)	$	20,100	$	31,400

What is the product margin for Product W1 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)

Answer 1

Computation of Product Margin
	Product W1	Product M0
Sales	$76,500	$67,100
Less
Direct Material	$33,000	$16,000
Direct Labour	$20,100	$31,400
Applied Overhead
MH	$11,251	$37,168
	(5570X2.02)	(18400X2.02)
Orders	$531	$2,921
	(180X2.95)	(990X2.95)
Total Expense	$64,882	$87,489
Product Margin	$11,618	-$20,389

Computation of Activity Rate
Activity	Cost Pool	Activity Pool	Activity Rate
Machining	$48,400.00	23970	$2.02
Order Filling	$3,450.00	1170	$2.95

Computation of Allocation of Overhead
	Machining	Order Filling
EquipmentDep	44000	2070
	(110000*0.40)	(6900*0.3)
Supervisory Salry	4400	1380
	(11000*0.40)	(6900*0.20)
Total	48400	3450