Question
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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