Doede Corporation uses activity-based costing to compute product margins. In the
ID: 2552094 • 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:
Overhead costs:
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?
Equipment depreciation $ 74,000 Supervisory expense $ 6,800Explanation / Answer
Solution:
Product Margin is the different between Sales and total manufacturing cost.
Manufacturing Cost includes direct material cost, direct labor cost and applied manufacturing overheads.
First of all we will assign the cost to activity cost pools
Assigning Cost to Activity Cost Pool
Total
Machining
Order Filing
Other
Equipment depreciation
$29,600
(74000*0.4)
$22,200
(74000*0.30)
$22,200
(74000*0.30)
$74,000
Supervisory Expense
$2,720
(6800*0.40)
$1,360
(6800*0.20)
$2,720
(6800*0.40)
$6,800
Total
$32,320
$23,560
$24,920
$80,800
Now we will calculate the cost per activity and total manufacturing overhead assigned to Product W1 based on the actual activity used by Product W1
Product W1
Activity Cost Pool
Expected Manufacturing Overhead Costs (A)
Expected Activity Cost Driver (B)
Activity Rate (C = A/B)
Activity Driver USAGE (H)
Overhead Assigned (C*H)
Machining
$32,320
23,010
Machine Hours
$1.40
per machine hour
6110
$8,554.00
Order Filing
$23,560
1094
Number of orders
$21.54
Per order
136
$2,929.44
Other
$24,920
$80,800
$11,483.44
Product Margin
Product W1
Total Sales
$77,200
Total Manufacturing Costs:
Direct materials
$34,400
Direct Labor
$22,800
Assigned manufacturing overhead
$11,483.44
Total Manufacturing Costs
$68,683.44
Product Margin (Sales - MF Costs)
$8,516.56
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Assigning Cost to Activity Cost Pool
Total
Machining
Order Filing
Other
Equipment depreciation
$29,600
(74000*0.4)
$22,200
(74000*0.30)
$22,200
(74000*0.30)
$74,000
Supervisory Expense
$2,720
(6800*0.40)
$1,360
(6800*0.20)
$2,720
(6800*0.40)
$6,800
Total
$32,320
$23,560
$24,920
$80,800
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