Question

utilizing the activity based costing system information provided below, select the correct product margin

activity cost pool
assembly $600,000, 5,000 machine hours
processing orders $300,000, 500 orders
inspection $200,000, 400 inspection hours.

The company makes 5000 units of product XYZ a year, requiring a total of 1000 machine hours, 10 orders and 10 inspection hours per year. the products direct materials cost is $100 per unit and it's direct labor cost is $50 per unit. the product sells for $200 per unit .

a. $140,000
b. $119,000
c. $249,400
d. 249,780

Answer 1

If it is helpful, please rate the answer and if any doubt arises let me know

	Correct option is: b. $119,000
	Workings:
		Total cost	Total activity	Cost per activity
		(i)	(ii)	(i) / (ii)
	Assembly	$                           6,00,000	5000	$                      120
	Processing	$                           3,00,000	500	$                      600
	Inspection	$                           2,00,000	400	$                      500
		Cost per activity	Total activity	Cost assigned
		(a)	(b)	(a) X (b)
	Machine setup	$                                     120	1000	$             1,20,000
	Purchase orders	$                                     600	10	$                   6,000
	Order size	$                                     500	10	$                   5,000
	Total			$             1,31,000
	Direct material (5000 X $100)			$             5,00,000
	Direct labor (5000 X $50)			$             2,50,000
	Total Cost			$             8,81,000
	Sales Revenue (5000 X $200)			1000000
Less:	Total Cost			$             8,81,000
	Product margin			$             1,19,000