Question

Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below:
Processing $ 3,800
Supervising $ 23,800
Other $ 10,400


Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:



MHs (Processing) Batches (Supervising)
Product M0 9,700 500
Product M5 300 500
Total 10,000 1,000


Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.



Product M0 Product M5
Sales (total) $ 74,100 $ 89,900
Direct materials (total) $ 28,500 $ 31,400
Direct labor (total) $ 27,800 $ 41,700


The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

Answer 1

The activity Rate for the Supervising activity cost pool under activity-based costing is closest to  = 38000 / 1000 =  $ 38 per batch

What is Product Margin ?

Product Margin is the difference in the amount of sales to the costing of the product.

The calculation of product margin for product M(5) under activity based costing

                                                                Product M(5)

Sales                                                         $89900            

Less : Costs

Direct Material                                           $31400

Direct Labour                                              $41700

Processing                                                   $114

Supervising                                                  $12014

Product Margin                                          $4672

Processing = ($ 3800 / 10000 ) * 300 = $114

Supervising = $ (23800 / 1000) * 500 = $11900

Total overhead costs = $ 11900 + $ 114 = $12014

Therefore the product margin is $4672

The activity Rate for the Supervising activity cost pool under activity-based costing is closest to  = 38000 / 1000 =  $ 38 per batch

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