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23 August, 15:13

Pinnocle Corporation has provided the following data from its activity-based costing system: Activity Cost PoolTotal CostTotal Activity Assembly$1,363,440 69,000machine-hours Processing orders 45,254 1,700orders Inspection 120,754 1,730inspection-hours The company makes 490 units of product S78N a year, requiring a total of 740 machine-hours, 30 orders, and 10 inspection-hours per year. The product's direct materials cost is $50.61 per unit and its direct labor cost is $12.74 per unit. The product sells for $116.40 per unit. According to the activity-based costing system, the product margin for product S78N is:

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  1. 23 August, 17:50
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    Contribution margin = $20.15

    Explanation:

    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 = 1,363,440/69,000 = $19.76 per machine-hour

    Processing orders = 45,254/1,700 = $26.62 per order

    Inspection = 120,754/1,730 = $69.8

    Now, we need to allocate overhead to S78 N units:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Assembly = 19.76*740 hours = 14,622.4

    Processing = 26.62*30 = 798.6

    Inspection = 69.8*10 = 698

    Total = $16,119

    Unitary overhead = 16,119/490 = $32.90

    Finally, we can calculate the unitary cost and product margin:

    Total unitary cost = direct material + direct labor + allocated overhead

    Total unitary cost = 50.61 + 12.74 + 32.90 = $96.25

    Contribution margin = selling price - total unitary cost

    Contribution margin = 116.4 - 96.25 = $20.15
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