Asked by Ishmail Mgwena on May 08, 2024
Verified
Bachrodt Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below: Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below
Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.
What is the product margin for Product Y7 under activity-based costing?
A) −$3,800
B) $4,728
C) $14,200
D) $6,208
Product Margins
The difference between the selling price of a product and the cost to produce it, reflecting the profitability of each product sold.
Machine-Hours
A measure used in accounting to allocate manufacturing overhead costs, representing the total hours that machines are operated in the production of goods.
Number of Batches
The total count of groups or sets of items processed or produced together in a manufacturing or production process.
- Calculate product margins under ABC.
Verified Answer
Processing Overhead Rate = Total Processing Cost / Total Machine Hours = $88,000 / 5,500 MHs = $16 per MH
Supervising Overhead Rate = Total Supervising Cost / Total Batches = $22,500 / 250 Batches = $90 per Batch
Next, we need to assign the overhead costs to each product based on the activity data:
Product Y7 Processing overhead = 1,100 MHs x $16 per MH = $17,600
Product Y7 Supervising overhead = 25 Batches x $90 per Batch = $2,250
Now we can calculate the total cost and product margin for Product Y7:
Product Y7 Total Cost = Direct Materials + Direct Labor + Processing Overhead + Supervising Overhead = $16,000 + $12,000 + $17,600 + $2,250 = $47,850
Product Y7 Sales Revenue = $52,000
Product Y7 Product Margin = Sales Revenue - Total Cost = $52,000 - $47,850 = $4,728
Therefore, the answer is B ($4,728).
Learning Objectives
- Calculate product margins under ABC.
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