* 46% 1:33 PM a webassign.net Verizon Question 1 (allocating costs using ABC, pr
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* 46% 1:33 PM a webassign.net Verizon Question 1 (allocating costs using ABC, product profit margin) Generic Motors Corporation has two product lines, A and B. Its contribution margin statement for last year is as follows: Generic Motors uses ABC to allocate the fixed costs. It examined the main activities in the firm, and decided to break up the total fixed costs of $29,250 into 3 cost pools: ""labor-related" the total cost in this pool is $7,500, allocated based on direct labor dollars ""sales-related" the total cost in this pool is $6,750, allocated based on number of units "production setups" -the total cost in this pool is $15,000, allocated based on the number of production batches. A is produced in batches of 10 units, and B is produced in batches of 5 units. Required a) for each cost pool, compute the allocation rate and the amounts allocated to product A and product B. (hint: The amounts allocated to A and B from each pool should add up to the total cost in that pool. To allocate the costs in the "production setups pool, you will have to compute the number of batches. If the total number of batches for A and B does not add up to 75, you are doing something wrong). " "labor-related" pool allocation rate $ FC allocated to A-$ FC allocated to B-$ "sales-related" pool: allocation rate $ FC allocated to A $ FC allocated to B- per DL$ per unit ""production setups" pool allocation rate $ FC allocated to A = FC allocated to B-$ per batch b) using the allocated costs from (a), compute the profit margin for product A and product B. If you get a negative number, enter it with a minus sign, i.e., enter negative $100 as -100, not ($100) profit margin for A- profit margin for B-$Explanation / Answer
Answer
Cost Pool
Cost
Driver
Product A
Product B
Total Driver
Activity Rate per cost driver
Labor related
$ 7,500.00
Direct labor dollars
$ 7,500.00
$ 30,000.00
$37500
0.2
Sales Related
$ 6,750.00
Number of units
150
300
450
$ 15.00
Production setups
$ 15,000.00
Number of batches
15
60
75
$ 200.00
Total
$ 29,250.00
Labor related
$ 7,500.00
Allocation rate
0.2
per DL$
FC Allocated to A
$ 1,500.00
[0.2 x $7500]
FC Allocated to B
$ 6,000.00
[0.2 x $30000]
Sales Related
$ 6,750.00
Allocation rate
$ 15.00
per unit
FC Allocated to A
$ 2,250.00
[150 x $15]
FC Allocated to B
$ 4,500.00
[300 x $15]
Production setups
$ 15,000.00
Allocation rate
$ 200.00
per batch
FC Allocated to A
$ 3,000.00
[15 x $200]
FC Allocated to B
$ 12,000.00
[60 x $200]
Product A
Product B
Contribution margin
$4500
$30000
(-) Allocated Fixed Cost:
Labor related
$1500
$6000
Sales Related
$2250
$4500
Production setups
$3000
$12000
Profit Margin
$ - 2250 [negative]
$7500
Cost Pool
Cost
Driver
Product A
Product B
Total Driver
Activity Rate per cost driver
Labor related
$ 7,500.00
Direct labor dollars
$ 7,500.00
$ 30,000.00
$37500
0.2
Sales Related
$ 6,750.00
Number of units
150
300
450
$ 15.00
Production setups
$ 15,000.00
Number of batches
15
60
75
$ 200.00
Total
$ 29,250.00
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