Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below: Overhead costs:
Equipment depreciation $74,000
Supervisory expense $6,800
Distribution of Resource Consumption Across Activity Cost Pools:
Activity Cost Pools
Machining Order Filling
Other Equipment depreciation 0.40 0.30
Supervisory expense 0.40 0.10
In the second stage, Machining costs are assigned to products using machine hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.
Activity:
MHs
(Machining) Orders
(Order Filling)
Product W1 5,630 199
Product M0 18,600 981
Total 24,230 1,180
Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.
Sales and Direct Cost Data:
Product W1 Product M0
Sales (total) $66,210 $65,900
Direct materials (total) $31,700 $22,200
Direct labor (total) $19,000 $27,800
What is the product margin for Product W1 under activity-based costing?
a. $10,897.
b. $3,103.
c. $7,117.
d. $6,337.