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Activity Cost Pools Machining Purchase orders Design alterations Customer relations Segment sustaining Total Manufacturing overhead 30% 10% 40% 0% 20% 100% Fixed selling expenses 0%

Activity Cost Pools

Machining

Purchase

orders

Design

alterations

Customer

relations

Segment

sustaining

Total

Manufacturing overhead

30%

10%

40%

0%

20%

100%

Fixed selling expenses

0%

25%

30%

35%

10%

100%

Total administrative expenses

25%

0%

0%

30%

45%

100%

Information on the costs associated with the three activity cost pools can found in the traditional income statement reported on the previous page.

Model-specific data:

Standard

Advanced

Total

Sales

$600,000

$400,000

$1,000,000

Direct costs

Direct materials

125,000

75,000

200,000

Direct labor

30,000

20,000

50,000

Variable selling expenses

25,000

15,000

40,000

Units sold

5,000

2,000

Unit selling price

$120

$200

Machine hours per unit

0.4 MH

0.6 MH

Data from the activity-based costing system:

Expected activity

Activity cost pool

Activity measure

Standard

Advanced

Total

Machining

number of machine hours

2,000

1,200

3,200

Purchase orders

number of purchase orders

200

300

500

Design alterations

Number of design alterations

0

400

400

Customer relations

Number of customers

20

80

100

Segment sustaining

Not applicable

Calculate product margin for the two models, Standard and Advanced, separately using the activity-based costing system. The amount of product margin should be on a total basis and on a per-unit basis using the following template for guidance:

Standard Advanced

Sales $$$ $$$

Activity-based costs

Direct materials $$$ $$$

Direct labor $$$ $$$

Variable selling expense $$$ $$$

Machining $$$ $$$

Purchase orders $$$ $$$

Design alterations $$$ $$$

Product margin $$$ $$$

Average product margin per unit $$$ $$$

Note: customer relations is a customer-level activity and should not be included in the computation of the product margin.

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