Homework SourseExercise 711 SecondStage Allocation and Margin Calculations
Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5]
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:
The company just completed a single order from Interstate Trucking for 2,700 custom seat cushions. The order was produced in four batches. Each seat cushion required 0.7 direct labor-hours. The selling price was $142.00 per unit, the direct materials cost was $112 per unit, and the direct labor cost was $14.20 per unit. This was Interstate Trucking’s only order during the year.
Required:
Calculate the customer margin on sales to Interstate Trucking for the year.
| Activity Cost Pool | Activity Measure | Activity Rate | ||
| Supporting direct labor | Number of direct labor-hours | $ | 14 | per direct labor-hour |
| Batch processing | Number of batches | $ | 90 | per batch |
| Order processing | Number of orders | $ | 283 | per order |
| Customer service | Number of customers | $ | 2,639 | per customer |
Solution
Calculate customer margin :
| Sales (2700*142) | 383400 | |
| Less : Costs | ||
| Direct material (2700*112) | (302400) | |
| Direct labour (2700*14.20) | (38340) | |
| Supporting direct labour (2700*.70*14) | (26460) | |
| Batch cost (90*4) | (360) | |
| Order processing | (283) | |
| Customer service | (2639) | (370482) |
| Customer margin | 12918 | |
![Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5] Foam Products, Inc., makes foam seat cushions for the automotive and aerospace indu](/WebImages/27/exercise-711-secondstage-allocation-and-margin-calculations-1071811-1761561532-0.webp "Exercise 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, LO7-5] Foam Products, Inc., makes foam seat cushions for the automotive and aerospace indu")
