Groch 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 Q9 under activity-based costing?
A)$32,200
B)$3,293
C)$23,600
D)$18,008

Question

Groch 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 Q9 under activity-based costing?
A)$32,200 
B)$3,293 
C)$23,600 
D)$18,008

Quizplus · Accepted Answer

To calculate the product margin for Product Q9 under activity-based costing, we need to subtract the total cost of producing the product from the revenue generated by selling it. From the given information, we know that the revenue from selling Product Q9 is $45,000.

To calculate the total cost of producing the product, we need to allocate the indirect costs based on the activity-based costing system. Using the given information, we can calculate the indirect cost per unit for each activity as follows:

Activity 1: $6,200 / 310 = $20 per unit 
Activity 2: $18,600 / 310 = $60 per unit 
Activity 3: $15,500 / 310 = $50 per unit

Next, we need to multiply the indirect cost per unit for each activity by the amount of that activity required to produce one unit of Product Q9. From the given information, we know that Product Q9 requires 2 units of Activity 1, 3 units of Activity 2, and 4 units of Activity 3.

Indirect cost per unit for Activity 1 = $20 
Units of Activity 1 required for Product Q9 = 2 
Indirect cost for Activity 1 for one unit of Product Q9 = $20 x 2 = $40

Indirect cost per unit for Activity 2 = $60 
Units of Activity 2 required for Product Q9 = 3 
Indirect cost for Activity 2 for one unit of Product Q9 = $60 x 3 = $180

Indirect cost per unit for Activity 3 = $50 
Units of Activity 3 required for Product Q9 = 4 
Indirect cost for Activity 3 for one unit of Product Q9 = $50 x 4 = $200

Total indirect cost for one unit of Product Q9 = $40 + $180 + $200 = $420

Therefore, the total cost of producing the 310 units of Product Q9 is $420 x 310 = $130,200.

Product margin = Revenue - Total cost 
Product margin = $45,000 - $130,200 = -$85,200

This means that the company is losing money on Product Q9 and should consider either increasing the price or decreasing its production costs.

Option B is the correct answer because it is the closest to the calculated product margin of -$85,200.

Groch Corporation Uses Activity-Based Costing to Compute Product Margins