Question

Vontungeln 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	$64,000
Supervisory expense	$ 4,000

Distribution of Resource Consumption Across Activity Cost Pools:
	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.50	0.30	0.20
Supervisory expense	0.10	0.10	0.80

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 I6	7,600	600
Product E9	12,400	400
Total	20,000	1,000

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

Sales and Direct Cost Data:
	Product I6	Product E9
Sales (total)	$182,400	$147,800
Direct materials (total)	$ 93,700	$ 46,800
Direct labor (total)	$ 52,700	$ 65,300

What is the product margin for Product I6 under activity-based costing?

$11,928

$23,688

$2,000

$36,000

Answer 1

we shall first allocate cost to departments

	Machining	Order Filling	Other	Total
Equipment depreciation	$32,000[$64,000*0.50]	$19,200[64,000*0.3]	$12,800[64,000*0.20]	1
Supervisory expense	$400[0.10*4,000]	400[4,000*0.10]	$3,200[$4,000*0.80]	1
Total	$32,400	$19,600	$16,000

now we will allocate costs to the product (I6 as relevant for our question]

	MHs (Machining)	Orders (Order Filling)
Product I6	12,312 [$32,400/20,000]*7,600	11,760[$19,600/1,000]*600]
Total	20,000	1,000

Total overhead cost allocated to i6=$12,312+11,760

=$24,072

product margin = sales-Direct material cost-Labor cost-Overhead cost

	Product I6
Sales (total)	$182,400
Direct materials (total)	$ 93,700
Direct labor (total)	$ 52,700
Overhead	$24,072
Product Margin	$11,928[$182,400-93,700-52,700-24,072]

Answe A)

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