Activity rate for processing = $3000/(5600+4400) = $0.3 per MH
Activity rate for setting up = $9,800/(700+300) = $9.8 per batch
Amount of overhead costs assigned to Product A6 = 4,400*$0.3 + 300*$9.8 = $4,260
Sales = $45,300
(-) Direct materials (total) = ($19,600)
(-) Direct Labour (total) = ($15,900)
(-) Overhead costs = ($8,540)
Product margin = $1,260
The product margin for Project A6 based on activity costing is computed as follows.
Sales = $48,400
(-) Direct materials (total) = ($16,900)
(-) Direct Labour (total) = ($24,200)
(-) Overhead costs = ($4,260)
Product margin = $3,040
iv) The product margin for Product A1 based on traditional costing is computed as follows.
Sales = $45,300
(-) Direct materials (total) = ($19,600)
(-) Direct Labour (total) = ($15,900)
(-) Overhead costs = ($3,000 + $9,800)*(5600/10000) = ($7,168)
Product margin = $2,632
The product margin for Project A6 based on traditional costing is computed as follows.
Sales = $48,400
(-) Direct materials (total) = ($16,900)
(-) Direct Labour (total) = ($24,200)
(-) Overhead costs = ($3,000 + $9,800)*(4400/10000) = ($5,632)
Product margin = $1,668
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