Doede Corporation uses activity-based costing to compute product margins. In the

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?

$7,996 A

$23,356 B

-$12,800 C

$35,200 D

Overhead costs: Equipment depreciation $ 92,000 Supervisory expense $ 4,000

Explanation / Answer

Solution :

Hence option A is correct.

First stage allocation of cost to activity cost pools Particulars Total Cost Machining Order Filling Others % Amount % Amount % Amount Equipment depreciation $92,000.00 60% $55,200.00 20% $18,400.00 20% $18,400.00 Supervisory expense $4,000.00 30% $1,200.00 20% $800.00 50% $2,000.00 Total $96,000.00 $56,400.00 $19,200.00 $20,400.00

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