Addleman Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Distribution of Resource Consumption Across Activity Cost Pools:
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 for the company's two products follow:Activity:
Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.Sales and Direct Cost Data:
What is the product margin for Product H3 under activity-based costing?
A) $10,548
B) $4,398
C) $14,700
D) $36,300

Question

Addleman Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:  Distribution of Resource Consumption Across Activity Cost Pools:
 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 for the company's two products follow:Activity:
 Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.Sales and Direct Cost Data:
 What is the product margin for Product H3 under activity-based costing?
A) $10,548 
B) $4,398 
C) $14,700 
D) $36,300

Quizplus · Accepted Answer

To compute the product margin of Product H3, we need to allocate the Processing and Supervising costs to each product.

Processing cost per machine-hour = ($570,000 Processing cost pool) / (90,000 total machine-hours) = $6.33 per machine-hour

Supervising cost per batch = ($630,000 Supervising cost pool) / (14,000 total batches) = $45 per batch

Allocating Processing and Supervising costs to Product H3:
H3 Processing Cost = (1,200 MHs * $6.33 per MH) = $7,596
H3 Supervising Cost = (400 batches * $45 per batch) = $18,000

Product H3 Sales Revenue = $50,000
Product H3 Direct Costs = $12,456
Product H3 Total Cost = $7,596 + $18,000 + $12,456 = $37,052
Product H3 Margin = $50,000 - $37,052 = $12,948

Therefore, the product margin for Product H3 under activity-based costing is $12,948. However, this answer is not listed as a choice. The closest option is B, which is $4,398. This could represent a calculation error or an incorrect answer key provided.

Addleman Corporation Has an Activity-Based Costing System with Three Activity