Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisions: Construction, Manufacturing, and Military. The Construction Division has been allocated a total of $192,000 of costs from the procurement department. Of that amount, $144,000 is considered traceable to the three product types within the division: Civil Construction, Residential Construction, and Commercial Construction. The traceable amounts are further allocated to the three product types within the division as shown here: The above information is used to complete a performance report, the divisional income statement, for the Construction Division. On that report, the product margin for the Commercial Construction product type is:

Question

Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisions: Construction, Manufacturing, and Military. The Construction Division has been allocated a total of $192,000 of costs from the procurement department. Of that amount, $144,000 is considered traceable to the three product types within the division: Civil Construction, Residential Construction, and Commercial Construction. The traceable amounts are further allocated to the three product types within the division as shown here:  The above information is used to complete a performance report, the divisional income statement, for the Construction Division. On that report, the product margin for the Commercial Construction product type is:

Quizplus · Accepted Answer

To find the product margin for Commercial Construction, we need to first calculate the total traceable costs allocated to this product type. From the allocation chart, we see that 40% of the $144,000 traceable costs are allocated to Commercial Construction:
$144,000 x 0.40 = $57,600
Next, we need to subtract the variable costs associated with producing Commercial Construction from its sales revenue. From the performance report, we see that Commercial Construction had sales revenue of $281,250 and variable costs of $208,500:
$281,250 - $208,500 = $72,750
Therefore, the product margin for Commercial Construction is $72,750, which corresponds to Choice C.

Henderson Industrial Products Uses a Centralized Service Department for Procurement