Question

Assume a company produces and sells only two products—14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product A’s direct materials and direct labor costs per unit are $32 and $12, respectively. Product B’s direct materials and direct labor costs per unit are $34 and $15, respectively. The company is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to three cost pools. The following additional information is available for the company as a whole and for Products A and B:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost			Expected Activity
Machining	Machine-hours	$	300,000		18,750	MH
Machine setups	Number of setups	$	150,000		200	Setups
Product design	Number of products	$	78,000		2	Products

Activity Measure	Product A	Product B
Machine-hours	9,000	6,000
Number of setups	50	150
Number of products	1	1

Using the ABC system, what is the product margin for Product A?

a. 73,500

b. 80,250

c. 52,250

d. 54,500

Answer 1