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In its first year of operations, the company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Product A Product B Total $436,300 Direct materials Direct labor Manufacturing overhead Cost of goods sold $249,900 $686,200 $200,000 $104,000 $304,000 $608,000 $1,598,200 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Activity Activity Cost Pool (and Activity Measure) | Manufacturing Overhead Product A Product B | Total Machining (machine-hours) $213,500 90,000 62,500 152,500 Setups (setup hours) $157,500 75 300 375 Product design (number of products) $120,000 1 1 2 Other (organization-sustaining costs) $117,000 NA NA ΝΑ Total manufacturing overhead cost $608,000 The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature. If the company uses a traditional cost system that relies on plantwide overhead allocation based on direct labor dollars, what is the total gross margin (or product margin) earned by Product B?

In its first year of operations, the company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Product A Product B Total $436,300 Direct materials Direct labor Manufacturing overhead Cost of goods sold $249,900 $686,200 $200,000 $104,000 $304,000 $608,000 $1,598,200 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Activity Activity Cost Pool (and Activity Measure) | Manufacturing Overhead Product A Product B | Total Machining (machine-hours) $213,500 90,000 62,500 152,500 Setups (setup hours) $157,500 75 300 375 Product design (number of products) $120,000 1 1 2 Other (organization-sustaining costs) $117,000 NA NA ΝΑ Total manufacturing overhead cost $608,000 The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature. If the company uses a traditional cost system that relies on plantwide overhead allocation based on direct labor dollars, what is the total gross margin (or product margin) earned by Product B?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 21E: Ellerson Company provided the following information for the last calendar year: During the year,...
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In its first year of operations, the company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Product A Product B Total $436,300 Direct materials Direct labor Manufacturing overhead Cost of goods sold $249,900 $686,200 $200,000 $104,000 $304,000 $608,000 $1,598,200 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Activity Activity Cost Pool (and Activity Measure) | Manufacturing Overhead Product A Product B | Total Machining (machine-hours) $213,500 90,000 62,500 152,500 Setups (setup hours) $157,500 75 300 375 Product design (number of products) $120,000 1 1 2 Other (organization-sustaining costs) $117,000 NA NA ΝΑ Total manufacturing overhead cost $608,000 The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature. If the company uses a traditional cost system that relies on plantwide overhead allocation based on direct labor dollars, what is the total gross margin (or product margin) earned by Product B?
Transcribed Image Text:In its first year of operations, the company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Product A Product B Total $436,300 Direct materials Direct labor Manufacturing overhead Cost of goods sold $249,900 $686,200 $200,000 $104,000 $304,000 $608,000 $1,598,200 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Activity Activity Cost Pool (and Activity Measure) | Manufacturing Overhead Product A Product B | Total Machining (machine-hours) $213,500 90,000 62,500 152,500 Setups (setup hours) $157,500 75 300 375 Product design (number of products) $120,000 1 1 2 Other (organization-sustaining costs) $117,000 NA NA ΝΑ Total manufacturing overhead cost $608,000 The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature. If the company uses a traditional cost system that relies on plantwide overhead allocation based on direct labor dollars, what is the total gross margin (or product margin) earned by Product B?
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