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	$	51,000
Supervisory expense	$	11,300

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.50	0.20		0.30
Supervisory expense	0.50	0.10		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	5,630	199
Product M0	18,600	981
Total	24,230	1,180

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)	$	66,210	$	65,900
Direct materials (total)	$	31,700	$	22,200
Direct labor (total)	$	19,000	$	27,800

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

Multiple Choice

• $10,897

• $3,103

• $7,117

• $6,337

Answer 1

	Computation of product margin
	Product W1
	Sales		$ 66,210.00
Less:	Direct Materials		$ (31,700.00)
Less:	Direct Labor		$ (19,000.00)
Less:	OH		$   (9,148.00)
	Profit		$     6,362.00

Answer: $ 6337 (the difference might be because of decimals)

Workings:

Distribution of Resource Consumption Across Activity Cost Pools:
Activity Cost Pools
			Total	Machining	Workings	Order Filling	Workings	Other	Workings
Equipment depreciation			$ 51,000.00	$ 25,500.00	($ 51000 x 0.5/1)	$ 10,200.00	($ 51000 x 0.2/1)	$ 15,300.00	($ 51000 x 0.3/1)
Supervisory expense			$ 11,300.00	$   5,650.00	($ 51000 x 0.5/1)	$   1,130.00	($ 11300 x 0.1/1)	$   4,520.00	($ 11300 x 0.4/1)
				$ 31,150.00		$ 11,330.00

	Product W1
Machining	$     7,237.91	($ 31150 x 5630 / 24230)
Order Filling	$     1,910.74	($ 11330 x 199/ 1180)
OH	$     9,148.64