The following information is available for Dakota Company:

Product 1

Product 2

Sales

$1,400,000

$1,800,000

Direct materials

(200,000)

(400,000)

Direct labor

(600,000)

(600,000)

Manufacturing overhead*

(500,000)

(500,000)

Gross margin

$100,000

$300,000

*allocated based on direct labor hours

Dakota Company has decided to allocate its manufacturing overhead cost using activity-based costing. Manufacturing overhead will be allocated based on batch-level and product line manufacturing as follows:

Total

Manufacturing

Overhead Costs

Product 1

Product 2

Batch-level manufacturing overhead

$600,000

20 batches

60 batches

Product line manufacturing overhead

$400,000

10 lines

40 lines

What is Dakota Company's gross margin for Product 2 using activity based costing?

• $350,000
• $300,000
• $30,000
• $480,000

Which answer is correct?