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

Question

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

Quizplus · Accepted Answer

First, we need to calculate the overhead rate for each activity cost pool:
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).

Bachrodt Corporation Uses Activity-Based Costing to Compute Product Margins