Question

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

Machining	$	15,800
Order Filling	$	6,400
Other	$	9,800

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 data appear below:

	MHs (Machining)	Orders (Order Filling)
Product O4	4,800	300
Product S1	15,200	1,700

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

	Product O4		Product S1
Sales (total)	$	70,200	$	112,200
Direct materials (total)	$	23,900	$	44,300
Direct labor (total)	$	38,900	$	46,700

a) (Multiple Choice) The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

            A) $1.18 per order

            B) $1.00 per order

            C) $3.20 per order

            D) $16.00 per order

b) What is the overhead cost assigned to Product S1 under activity-based costing?

c) What is the product margin for Product S1 under activity-based costing?

Answer 1

a
Order Filling overhead cost	6400
Divide by Orders	2000	=300+1700
Activity rate for the Order Filling activity	3.20
Option C $3.20 per order is correct
b
Machining activity rate	0.79	=15800/(4800+15200)
Machining	12008	=15200*0.79
Order Filling	5440	=1700*3.20
Overhead cost assigned to Product S1	17448
c
Sales	112200
Less: Costs
Direct materials	44300
Direct labor	46700
Overhead cost	17448
Total costs	108448
Product margin for Product S1	3752