Question

Brisky 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	$46,000
Supervisory expense	$12,200

Distribution of Resource Consumption Across Activity Cost Pools:
	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	0.50	0.20	0.30
Supervisory expense	0.50	0.10	0.40

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 I3	5,940	124
Product U8	14,600	923
Total	20,540	1,047

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

Sales and Direct Cost Data:
	Product I3	Product U8
Sales (total)	$66,500	$61,600
Direct materials (total)	$30,700	$23,100
Direct labor (total)	$19,300	$35,200

What is the product margin for Product I3 under activity-based costing? (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount.)

$2,609

$11,391

$7,611

$6,831

Answer 1

Distribution of Resource Consumption Across Activity Cost Pools:
	Activity Cost Pools
	Machining	Order Filling	Other
Equipment depreciation	23000	9200	13800
Supervisory expense	6100	1220	4880
Now, the cost of machining per hour
(Equipment depreciation for machining + supervisory expense for machining) / total machine hours
($23000+6100) / 20540 machine hours
1.42
$1.42 per hour
Also,the cost of order filling per order
(Equipment depreciation for order filling + supervisory expense for order filling) / total orders
($9200+1220) / 1,047 orders
$10420/1047 orders
9.95 per order
Now, for product I3, the total assigned overhead cost
Cost of machining per hour * machine hours for product I3 + Cost of order filling per order * orders for product I3
$1.42 per hour * 5,940 machine hours + $9.95 per order * 124 orders
$                                                                                 9,668.60
Also, the profit margin for product I3
Sales - (direct materials + direct labor + assigned overhead Cost)
$66500-(30700+19300+9668.60)
$                                                                                 6,831.40
Note : For Arthimetical calculations, Answers were calculated and rounded off upto 2 decimals.