Question

The following information is available for Dakota Company: Product 1 Product 2 Sales $1,400,000 $1,800,000 Direct materials (200,000) (400,000) Direct labor (600,000) (600,000) Manufacturing overhead* (500,000) (700,000) Gross margin $ 100,000 $ 100,000 *allocated based on direct labor hours Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. It is determined that $200,000 of manufacturing overhead is for facility support costs and therefore will not be used in computing gross margin for the individual products. The remaining $1,000,000 in manufacturing overhead will be allocated based on batch-level and product line manufacturing as follows: Total Manufacturing Overhead Costs Product 1 Product 2 Batch-level manufacturing overhead $400,000 20 batches 60 batches Product line manufacturing overhead $600,000 10 lines 40 lines What is Dakota Company's gross margin for Product 1 using activity based costing

Answer 1

Answer:

$380,000

Explanation:

Particulars                                           Product 1 (Amount)

Sales                                                          $1,400,000

(-) Direct materials                                   ($200,000)

(-) Direct labor                                          ($600,000)

(-) Manufacturing overhead

Batch level ($400,000*20/80)                 ($100,000)

Product line level ($600,000*10/50)       ($120,000)

Gross margin                                            $380,000

So, Dakota Company's gross margin for Product 1 using activity based costing is $380,000