Q. Debenhams Co. produces a single type of product for which the company uses an Activity- Based Costing system. The following overheads cost information is available:

Production Overhead$265,000

Administrative Expenses$180,000

Marketing Department Expenses$60,000

Additional office expense$50,000

The cost consumption across the cost pools are as follows:

Order SupportMachine SetupCustomer SupportOthers

Production Overheads20%70%0%10%

Administrative expenses40%10%45%5%

Marketing Department 35%0%50%15%

Additional Office expenses45%5%30%20%

The following activity measures are applied by the company: Order Support > Number of orders

Machine Setup > Machine hours Customer Support > Number of customers Others > N/A

In the current year, Debenhams Co. manufactured 8,000 units of finished goods. The company received 700 separate orders, from a total of 178 customers, to manufacture the finished goods.

Debenhams Co. uses a specialized machinery to manufacture it's finished goods. In the current year, the specialized machinery was run for 1.25 hours per unit of finished goods manufactured to fulfil the 700 orders the company had received.

The direct costs per unit in relation to the finished goods are as follows:

Direct Material$6

Direct Labor$8.50

Delivery Cost$15

In the month of May, the company received 45 orders from 7 different regular customers, the machinery was actively running for 196 hours, in order to manufacture the finished goods to be able to fulfil the orders received. The selling price per unit of finished good is $26.

Required:

a. Prepare the first-stage allocation of overhead costs to the activity cost pools.

b. Compute the Activity rates for all the activity pools.

c. Compute the total overhead cost for the finished good, only for the month of May

d .Calculate the product margin (profit or loss) for the production and sales of the 8,000 units of finished goods.