Question

Mirabile 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 $ 5,945
Supervising $ 19,680
Other $ 11,300
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:

MHs
(Processing) Batches
(Supervising)
Product M0 13,700 400
Product M5 800 400
Total 14,500 800
Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

Product M0 Product M5
Sales (total) $ 81,800 $ 94,400
Direct materials (total) $ 29,400 $ 32,300
Direct labor (total) $ 28,700 $ 42,600
What is the product margin for Product M5 under activity-based costing?

Answer 1

$9,332

Step-by-step explanation:

The computation of the product margin under activity based costing is shown below:

= Sales - direct material cost - direct labor cost - processing cost - supervising cost

where,

Processing = ($5,945 ÷ 14,500 machine hours) × 800 machine hours

= $328

And,

Supervising = ($19,680 ÷800 batches) × 400 batches

= $9,840

So, the product margin is

= $94,400 - $32,300 - $42,600 - $328 - $9,840

= $9,332