Spendlove Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $1,114,920 57,000 machine hours Processing Orders $47,016 1,800 orders Inspection $ 107,328 1,560 inspection-hours

The company makes 430 units of product S78N a year, requiring a total of 1,120 machine-hours, 40 orders, and 30 inspection-hours per year. The product's direct materials cost is $49.81 per unit and its direct labor cost is $12.34 per unit. The product sells for $129.90 per unit. According to the activity-based costing system, the product margin for product S78N is:

A. $4,116.50

B. $29,132.50 x

C. $6,180.50 x

D. $5,161.30

Option (A) is correct.

Explanation:

Given that,

Assembly:

Total Cost = $1,114,920

Total activity = 57,000

Processing orders:

Total Cost = $47,016

Total activity = 1,800

Inspection:

Total Cost = $107,328

Total activity = 1,560

Units produced = 430

Cost per activity for Assembly:

= Total Cost : Total activity

= $1,114,920 : 57,000

= $19.56

Cost per activity for Processing Orders:

= Total Cost : Total activity

= $47,016 : 1,800

= $26.12

Cost per activity for Inspection:

= Total Cost : Total activity

= $107,328 : 1,560

= $68.8

Cost for 430 unit Activities for Assembly:

= Cost per Activity * Activities for total 430 units

= $19.56 * 1,120 machine-hours

= $21,907.2

Cost for 430 unit Activities for Processing orders:

= Cost per Activity * Activities for total 430 units

= $26.12 * 40 orders

= $1,044.8

Cost for 430 unit Activities for Inspection:

= Cost per Activity * Activities for total 430 units

= $68.8 * 30 inspection-hours per year

= $2,064

Total costs:

= Cost for 430 unit Activities for Assembly + Cost for 430 unit Activities for Processing orders + Cost for 430 unit Activities for Inspection

= $21,907.2 + $1,044.8 + $2,064

= $25,016

Product margin for product S78N:

= Sales - Total Costs

= (430 * 129.90) - [430 x ($49.81 + $12.34) ] - $25,016

= $55,857 - $26,724.5 - $25,016

= $4,116.5