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	$	82,000
Supervisory expense	$	12,100

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.60	0.30		0.10
Supervisory expense	0.60	0.20		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	5,480	197
Product M0	19,500	948
Total	24,980	1,145

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)	$	71,600	$	65,200
Direct materials (total)	$	30,000	$	14,900
Direct labor (total)	$	21,900	$	26,000

What is the product margin for Product W1 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)

Answer 1

	Activity cost pools
	Machining	Order filling	Other	Total
Equipment Depreciation	$49,200	$24,600	$8,200	$82,000
Supervisory expenses	$7,260	$2,420	$2,420	$12,100
Total	$56,460	$27,020	$10,620	$94,100
Activities	Costs	Cost drivers	Cost driver total	Overhead rate(Costs/Cost driver total)
Machining	$56,460	No. of machine hours	24,980	$2.26	per machine hrs
Order Filling	$27,020	No. of orders	1,145	$23.60	per order
Calculation of Product Costs
	Product W1	Product Mo
	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
Machining	5480	$                                     12,385	19500	$                                             44,070
Order Filling	197	$                                       4,649	948	$                                             22,373
Total Overhead Cost allocated		$                                     17,034		$                                             66,443
Computation of Product Margin
	Product W1	Product Mo
Sales	$                        71,600	$                                     65,200
Less:Direct Materials	$                        30,000	$                                     14,900
Less:Direct labor	$                        21,900	$                                     26,000
Less:Overhead Costs	$                        17,034	$                                     66,443
Product Margin	$                          2,666	$                                    -42,143