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: 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. Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins. What is the product margin for Product I6 under activity-based costing?
A)$2, 000
B)$36, 000
C)$11, 928
D)$23, 688

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:   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.  Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.  What is the product margin for Product I6 under activity-based costing?
A)$2, 000 
B)$36, 000 
C)$11, 928 
D)$23, 688

Quizplus · Accepted Answer

To calculate the product margin for Product I6, we first need to allocate the Machining and Order Filling costs to the product using the activity rates.
 
- Machining costs allocation: 
Product I6 requires 900 MHs for machining, which are allocated at a rate of $12 per MH:
900 MHs x $12/MH = $10,800

- Order Filling costs allocation:
Two orders were placed for Product I6, which are allocated at a rate of $600 per order:
2 orders x $600/order = $1,200
 
The total cost allocation to Product I6 is:
Direct materials + Direct labor + Machining costs + Order filling costs
= $10,000 + $12,000 + $10,800 + $1,200
= $34,000
 
The product margin is calculated as:
Revenue - Direct cost - Allocated costs
= $50,000 - $34,000 - $4,072
= $11,928
 
Therefore, the product margin for Product I6 under activity-based costing is $11,928. Answer choice C is correct.

Vontungeln Corporation Uses Activity-Based Costing to Compute Product Margins