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:

Equipment depreciation	$	30,000
Supervisory expense	$	14,800

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.50	0.40		0.10
Supervisory expense	0.50	0.30		0.20

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:

	MHs (Machining)	Orders (Order Filling)
Product W1	5,530	161
Product M0	17,000	964
Total	22,530	1,125

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	69,700	$	65,700
Direct materials (total)	$	31,100	$	23,900
Direct labor (total)	$	22,400	$	29,500

What is the overhead cost assigned to Product W1 under activity-based costing? (Round your intermediate calculations to 2 decimal places and your final answer to nearest whole dollar amount.)

Multiple Choice

• $5,475

• $22,400

• $7,827

• $2,352

Answer 1

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First Stage:
	Machining	Order Filling	Other	Total
Equipment depreciation	$           15,000	$            12,000	$              3,000	$            30,000
Supervisory expense	$              7,400	$              4,440	$              2,960	$            14,800
Total	$           22,400	$            16,440	$              5,960	$            44,800
Second Stage:
	Machining	Order Filling
Total Cost	$           22,400	$            16,440
Machine Hours	22,530
Orders Filling		1,125
Rate	$                0.99	$              14.61
Overhead assigned to Prodcut W1:
Machining	5,530*$0.99	$              5,475
Order Filling	161*$14.61	$              2,352
		$              7,827