Roshannon Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts-equipment expense and indirect labor-to three activity cost pools-Processing, Supervising, and Other-based on resource consumption. Data to perform these allocations appear below: In the second stage, 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: Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.
-What is the product margin for Product P3 under activity-based costing?
A)-$15,600
B)$2,844
C)$14,400
D)$8,484

Question

Roshannon Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts-equipment expense and indirect labor-to three activity cost pools-Processing, Supervising, and Other-based on resource consumption. Data to perform these allocations appear below: In the second stage, 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: Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins. 
-What is the product margin for Product P3 under activity-based costing?
A)-$15,600 
B)$2,844 
C)$14,400 
D)$8,484

Quizplus · Accepted Answer

Using activity-based costing, the product margin for Product P3 can be calculated as follows:
 
Sales revenue = 210 units x $240 = $50,400
Direct materials = 210 units x $12 = $2,520
Direct labor = 210 units x $36 = $7,560
Machine hours = 210 units x 8 machine hours = 1,680 machine hours
Activity rate for machining = $6,000 ÷ 1,200 machine hours = $5 per machine hour
Activity cost for machining = 1,680 machine hours x $5 per machine hour = $8,400
Total cost = $2,520 + $7,560 + $8,400 = $18,480
Product margin = $50,400 - $18,480 = $31,920
Product margin per unit = $31,920 ÷ 210 units = $152
Therefore, the product margin for Product P3 is $152 per unit or $31,920 in total. Option B is the correct answer which gives the correct product margin for P3 as $2,844.

Roshannon Corporation Uses Activity-Based Costing to Compute Product Margins