Feldpausch Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $1,137,36084,000 machine-hoursProcessing orders $28,4791,100 ordersInspection $97,1551,270 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: A. $16,675.60B. $3,384.70C. $4,679.20D. $6,444.70

The answer is B) $3384,70

Explanation:

First we need to split the 3 main cost drivers into

Machine Hours - $1137360 / 84000 = 13,54

Processing Hours - $28479 / 1100 = 25,89

Inspection Hours - $97155 / 1270 = 76,5

Now we use the actual hours for the 470 units of W26B

470 units require 660 machine hours ( 660 x 13,54 ) + 40 inspection hours ( 40 x 76,5 ) + 50 orders ( 50 x 25,89 )

The total costs excluding the materials and labor cost are = $13290,9

Now we include the material and labor costs

Material Cost = 40,30 x 470 =  $18941

Labors Costs = 42,22 x 470 =  $19843,4

Total costs = $52075,3

Product sales = 118 x 470 = $55460

The margin = $3384,70

Therefore the answer is C.) 3384,70 as proven by the calculation above.

Option C. $3,384.7

Explanation:

The cost pool per cost driver can be calculated as under:

Cost Pool per Cost Driver = Total Coot Pool / Respective T.Cost Driver

Here

Total cost pool                     Respective Total Cost Driver

 $1,137,360                                  84,000 Machine Hours

 $28,479                                      1,100 Orders

 $97,155                                       1,270 Inspection Hours

Now,

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

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

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

Now for 470 units W26B, total machine hours worked are 660 machine hours, 50 orders and 40 inspection hours.

So:

Total ABC per 470 units of W26B = 660 * $13.54   +  50 * $25.89 + 40 * $76.5 = $13,291 per 470 units

Total ABC per unit W26B = $13,291 / 470 = $28.27 per unit

Total Product Cost = Prime Cost per unit  + Total ABC per unit

By putting values, we have:

Prime cost per unit = $40.3 + $42.22 = $82.52

Now

Total Product cost = $28.27 + $82.52 = $110.79

Which means product margin is $7.21 per unit and total margin for the year is $3389 ($7.21 * 470 units) which is close to $3,384.7 and the difference is because of rounding figures. So the right option is C.

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