Encarnacion 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: 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, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

-What is the product margin for Product C6 under activity-based costing?
A)$12,480
B)$30,700
C)$5,680
D)$41,700

Question

Encarnacion 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:  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, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

-What is the product margin for Product C6 under activity-based costing?
A)$12,480 
B)$30,700 
C)$5,680 
D)$41,700

Quizplus · Accepted Answer

To calculate the product margin for Product C6 under activity-based costing, we need to subtract the total cost of producing and selling the product from its total revenue. 
Total Revenue of Product C6 = $80,000 x 280 = $22,400,000 
Total Cost of Producing and Selling Product C6: 
Activity 1 Cost: $12,000 x 280 = $3,360,000 
Activity 2 Cost: $4,000 x 280 = $1,120,000 
Activity 3 Cost: $16,000 x 280 = $4,480,000 
Activity 4 Cost: $400 x 1,400 = $560,000 
Total Cost = $9,520,000 
Product Margin = Total Revenue - Total Cost 
Product Margin = $22,400,000 - $9,520,000 = $12,880,000 
Therefore, the product margin for Product C6 is $12,880,000. Option C is the closest answer, with a difference of $200.

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