Question

Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below:

Processing	$	5,945
Supervising	$	19,680
Other	$	11,300

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

	MHs (Processing)	Batches (Supervising)
Product M0	13,700	400
Product M5	800	400
Total	14,500	800

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

	Product M0		Product M5
Sales (total)	$	81,800	$	94,400
Direct materials (total)	$	29,400	$	32,300
Direct labor (total)	$	28,700	$	42,600

What is the product margin for Product M5 under activity-based costing?

Answer 1

Calculation of product margin for Product M5 under activity based costing
	Product M5
Sales	$94,400
Less : Costs
- Direct Material	$32,300
- Direct Labour	$42,600
- Processing	$328
- Supervising	$9,840
Product Margin	$9,332
Allocation of overhead cost to Product M5
				Product M5
Processing = ($5945 / 14500 machine hours) * 800 machine hours =				$328.00
Supervising = ($19680/800 batches)*400 batches =				$9,840.00
Total Overhead cost allocated				$10,168.00