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	$	22,000
Supervisory expense	$	6,000

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.50	0.30		0.20
Supervisory expense	0.50	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.

Activity:

	MHs (Machining)	Orders (Order Filling)
Product W1	5,400	100
Product M0	14,600	900
Total	20,000	1,000

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)	$	53,300	$	60,100
Direct materials (total)	$	29,700	$	14,000
Direct labor (total)	$	16,000	$	25,300

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

Garrison 16e Rechecks 2018-07-24

• $6,400

• $3,040

• $7,600

• $3,820

Answer 1

	Machining	Order Filling	Other
Equipment depreciation	11000	6600	4400
Supervisory expense	3000	1200	1800
Total	14000	7800	6200
Activity rate:
Machining	0.70	=14000/20000
Order Filling	7.80	=7800/1000
Product W1:
Sales	53300
Less: Costs
Direct materials	29700
Direct labor	16000
Machining	3780	=5400*0.70
Order Filling	780	=100*7.80
Total costs	50260
Product margin for Product W1	3040
$3,040 is correct option