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: Distribution of Resource Consumption Across Activity Cost Pools:
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:
Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.Sales and Direct Cost Data:
What is the product margin for Product W1 under activity-based costing?
A) $7,996
B) $23,356
C) −$12,800
D) $35,200

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:  Distribution of Resource Consumption Across Activity Cost Pools:
 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:
 Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.Sales and Direct Cost Data:
 What is the product margin for Product W1 under activity-based costing?
A) $7,996 
B) $23,356 
C) −$12,800 
D) $35,200

Quizplus · Accepted Answer

First, we need to allocate the overhead costs to the activity cost pools:

Machining: ($400,000 + $200,000) x (2,000/7,000) = $171,429
Order Filling: ($400,000 + $200,000) x (3,000/7,000) = $228,571
Other: $0

Next, we need to assign the costs in the Machining and Order Filling pools to the products:

Product W1 Machining cost: $171,429 x (2,400/12,000) = $34,286
Product W1 Order Filling cost: $228,571 x (80/800) = $22,857

Now we can calculate the product margin:

Product W1 margin = $60,000 - $25,857 - $22,500 - $34,286 = $7,996.

Therefore, the answer is A) $7,996.

Doede Corporation Uses Activity-Based Costing to Compute Product Margins