eneric Motors Corporation has two product lines, A and B. Its contribution margi

Question

eneric Motors Corporation has two product lines, A and B. Its contribution margin statement for last year is as follows: Product A Product B Total sales volume (units) 200 400 600 Revenue $12,000 $60,000 $72,000 Variable costs: direct materials $2,400 $12,000 $14,400 direct labor $6,000 $24,000 $30,000 Contribution margin $3,600 $24,000 $27,600 Fixed costs $23,400 Profit $4,200 Generic Motors uses ABC to allocate the fixed costs. It examined the main activities in the firm, and decided to break up the total fixed costs of $23,400 into 3 cost pools: * "labor-related" - the total cost in this pool is $6,000, allocated based on direct labor dollars * "sales-related" - the total cost in this pool is $5,400, allocated based on number of units * "production setups" - the total cost in this pool is $12,000, allocated based on the number of production batches. A is produced in batches of 10 units, and B is produced in batches of 5 units. Required: a) for each cost pool, compute the allocation rate and the amounts allocated to product A and product B. (hint: The amounts allocated to A and B from each pool should add up to the total cost in that pool. To allocate the costs in the "production setups" pool, you will have to compute the number of batches. If the total number of batches for A and B does not add up to 100, you are doing something wrong). * "labor-related" pool: allocation rate = $ Incorrect: Your answer is incorrect. per DL$ FC allocated to A = $ Incorrect: Your answer is incorrect. FC allocated to B = $ Incorrect: Your answer is incorrect. * "sales-related" pool: allocation rate = $ Correct: Your answer is correct. per unit FC allocated to A = $ Correct: Your answer is correct. FC allocated to B = $ Correct: Your answer is correct. * "production setups" pool: allocation rate = $ Correct: Your answer is correct. per batch FC allocated to A = $ Correct: Your answer is correct. FC allocated to B = $ Correct: Your answer is correct. b) using the allocated costs from (a), compute the profit margin for product A and product B. If you get a negative number, enter it with a minus sign, i.e., enter negative $100 as -100, not ($100) profit margin for A = $ Incorrect: Your answer is incorrect. profit margin for B = $ Incorrect: Your answer is incorrect.

Explanation / Answer

a) Cost Pools Labor related Sales related Production set ups Fixed costs $           6,000 $       5,400 $        12,000 Activity units 30000 600 100 labor dollars # of units # of production batches Total Activity rate 20% $         9.00 $        120.00 Amounts allocated: Product A $           1,200 $       1,800 $          2,400 $        5,400 Product B $           4,800 $       3,600 $          9,600 $      18,000 Total allocated to products $           6,000 $       5,400 $        12,000 $      23,400 b) Product A Product B Sales units 200 400 Revenue $        12,000 $     60,000 Variable costs: Material $           2,400 $     12,000 Labor $           6,000 $     24,000 Overhead allocated under ABC $           5,400 $     18,000 Total costs $        13,800 $     54,000 Product profit margin $        (1,800) $       6,000

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