Feldpausch Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool Total Cost Total Activity

Assembly $ 1,137,360 84,000 machine-hours

Processing orders $ 28,479 1,100 orders

Inspection $ 97,155 1,270 inspection-hours

The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit.

According to the activity-based costing system, the product margin for product W26B is:

Product margin per unit = $7.2

Explanation:

Giving the following information:

Activity Cost Pool Total Cost Total Activity

Assembly $ 1,137,360 84,000 machine-hours

Processing orders $ 28,479 1,100 orders

Inspection $ 97,155 1,270 inspection-hours

First, we need to calculate the estimated overhead rate for each activity cost pool:

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Assembly = 1,137,360/84,000 = $13.54 per machine hour

Processing = 28,479/1,100 = $25.89 per order

Inspection = 97,155/1,270 = $76.5 per inspection hour

We will calculate the total cost of production and then the unitary cost to determine the product margin:

Total cost = direct material + direct labor + allocated overhead

The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit.

Total cost = 40.30*470 + 42.22*470 + (660*13.54 + 50*25.89 + 40*76.5) = 52,075.3

Unitary cost = 52,075.3/470 = 110.80

Product margin = selling price - unitary cost = 118 - 110.8 = $7.2