Question

Bachrodt 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 $ 21,600
Supervising $ 3,700
Other $ 10,700
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 Y7 3,700 400
Product V0 6,300 600
Total 10,000 1,000
Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.
Product Y7 Product V0
Sales (total) $ 102,200 $ 78,900
Direct materials (total) $ 40,800 $ 39,100
Direct labor (total) $ 47,200 $ 22,300
What is the product margin for Product Y7 under activity-based costing?
a. -$3,800
b. $4,728
c. $14,200
d. $6,208

Answer 1

Answer:

Product margin= $4,728

Explanation:

Giving the following information:

Processing $ 21,600

Supervising $ 3,700

MHs (Processing) Batches (Supervising)

Product Y7 3,700 400

Product V0 6,300 600

Total 10,000 1,000

First, we need to calculate the estimated overhead rate for each activity:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Pocessing= 21,600/10,000= $2.16 per machine hour

Supervising= 3,700/1,000= $3.7 per batch

Now, we can allocate overhead to product Y7:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Pocessing= 2.16*3,700= $7,992

Supervising=3.7*400= $1,480

Total= $9,472

Finally, we can determine the product margin:

Product Y7:

Sales (total)= 102,200

Direct materials= (40,800)

Direct labor= (47,200)

Allocated overhead= (9,472)

Product margin= $4,728