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 Supervisory expense $70,000 $13,300 Distribution of Resource Consumption Across Activity Cost Pools: Equipment depreciation Supervisory expense Activity Cost Pools Machining Order Filling 0.50 0.30 0.50 0.20 Other 0.20 0.30 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.

Answer 1

First stage allocation:
				Activity cost pools
				Machining	Order filling	Other
Equipment depreciation				35000	21000	14000
(At the rate of 0.50:0.30:0.20)				(70000*0.5)	(70000*0.3)	(70000*0.2)
Supervisory expense				6650	2660	3990
(At the rate of 0.50:0.20:0.30)				(13300*0.5)	(13300*0.2)	(13300*0.3)
Total				41650	23660	17990
Second stage allocation:
Activity rate
Activity rate=Budgeted overhead cost/Budgeted allocation base
Machining:
Activity rate=41650/24980=$ 1.67 per MH
Order filling:
Activity rate=23660/1142=$ 20.72 per order
Overhead allocated to product W1:
Machining:
Overhead allocated=MH used *Activity rate=6380*1.67=$ 10655
Order filling:
Overhead allocated=Orders*Activity rate=161*20.72=$ 3336
Total overhead allocated=10655+3336=$ 13991
Product margin for W1:
				$	$
Sales					78700
Less:
Direct materials				38200
Direct labor				20800
Overhead allocated				13991	72991
Product margin					5709
Answer is
second option		$5,709
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