Doede Corporation uses activity-based costing to compute product margins. In the
ID: 2435643 • Letter: D
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?
Overhead costs: Equipment depreciation $ 92,000 Supervisory expense $ 4,000Explanation / Answer
Allocation of Overhead based on activity cost pools:
Stage 1 allocation:
Equipment Depreciation
allocation
$55,200
[$92,000 x 0.60]
$18,400
[$92,000 x 0.20]
$18,400
[$92,000 0,20]
$1,200
[$4000 x 0.30]
$800
[$4000 x 0,20]
$2,000
[$4000 x 0.50]
Stage 2 allocation:
$11,844
[$56,400 x (4,200 ÷ 20,000)]
$44,556
[$56,400 x (15,800 ÷ 20,000)]
$15,360
[$19,200 x (800 ÷ 1000)]
$3,840
[$19,200 x (200 ÷ 1000)]
Calculation of Product margin
Therefore product margin for product W1 = $7,996
Total overhead Machining Order pooling Others Activity rate 0.60 0.20 0.20Equipment Depreciation
allocation
$92,000$55,200
[$92,000 x 0.60]
$18,400
[$92,000 x 0.20]
$18,400
[$92,000 0,20]
Activity rate 0,30 0,20 0,50 Supervisory expense allocation $4,000$1,200
[$4000 x 0.30]
$800
[$4000 x 0,20]
$2,000
[$4000 x 0.50]
Total $96,000 $56,400 $19,200 $20,400Related Questions
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