Question

Pinnocle Corporation has provided the following data from its activity-based costing system: Activity Cost PoolTotal CostTotal Activity Assembly$1,363,440 69,000machine-hours Processing orders 45,254 1,700orders Inspection 120,754 1,730inspection-hours The company makes 490 units of product S78N a year, requiring a total of 740 machine-hours, 30 orders, and 10 inspection-hours per year. The product's direct materials cost is $50.61 per unit and its direct labor cost is $12.74 per unit. The product sells for $116.40 per unit. According to the activity-based costing system, the product margin for product S78N is:

Answer 1

Contribution margin= $20.15

Step-by-step explanation:

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

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Assembly= 1,363,440/69,000= $19.76 per machine-hour

Processing orders= 45,254/1,700= $26.62 per order

Inspection= 120,754/1,730= $69.8

Now, we need to allocate overhead to S78 N units:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Assembly= 19.76*740 hours= 14,622.4

Processing= 26.62*30= 798.6

Inspection= 69.8*10= 698

Total= $16,119

Unitary overhead= 16,119/490= $32.90

Finally, we can calculate the unitary cost and product margin:

Total unitary cost= direct material + direct labor + allocated overhead

Total unitary cost= 50.61 + 12.74 + 32.90= $96.25

Contribution margin= selling price - total unitary cost

Contribution margin= 116.4 - 96.25= $20.15