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

Activity Cost Pool Total Cost Total Activity

Assembly $ 613,250 55,000 machine-hours

Processing orders $ 46,170 1,500 orders

Inspection $ 146,110 1,900 inspection-hours

Data concerning one of the company's products, Product W58B, appear below:

Selling price per unit $ 113.70

Direct materials cost per unit $ 48.14

Direct labor cost per unit $ 11.62

Annual unit production and sales 360

Annual machine-hours 1,040

Annual orders 60

Annual inspection-hours 30

According to the activity-based costing system, the product margin for product W58B is:

Product margin per unit = $10.19

Explanation:

Giving the following information:

Activity Cost Pool Total Cost Total Activity

Assembly $ 613,250 55,000 machine-hours

Processing orders $ 46,170 1,500 orders

Inspection $ 146,110 1,900 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 = 613,250/55,000 = $11.15 per machine hour

Processing = 46,170/1,500 = $30.78 per order

Inspection = 146,110/1,900 = $76.9 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

Selling price per unit $ 113.70

Direct materials cost per unit $ 48.14

Direct labor cost per unit $ 11.62

Annual unit production and sales 360

Annual machine-hours 1,040

Annual orders 60

Annual inspection-hours 30

Total cost = 48.14*360 + 11.62*360 + (1,040*11.15 + 60*30.78 + 30*76.9) = 37,263.4

Unitary cost = 37,263.4/360 = 103.51

Product margin = selling price - unitary cost = 113.70 - 103.51 = $10.19