Exercise 4-10 and sells its products through catalog sales and retail outlets. W

Question

Exercise 4-10 and sells its products through catalog sales and retail outlets. While Kragan has for manufactures its own designed and labeled athletic wear and sells its products through catalog years used activity-based costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs have traditionally been assigned to Kra an's product lines at a rate of 70% of direct materials costs. ts direct materas costs high-intensity" line of athletic wear are $392,000. The company has decided to line of products for the month of March are as follows for the month of March for Kragan's extend activity-based costing to its selling costs. Data relating to the "high-intensity" Overhead Rate Number of Cost Drivers Used per Activity Activity Cost Pools Cost Drivers Sales commisions Dollar sales 900,000 300 2,200 62,500 8,750 900,000 $0.05 per dollar sales 300 per minute $10 per column inch Minutes Advertising-TV Advertising-Internet Column inches Catalogs Cost of catalog salesCatalog orders Credit and collection Dollar sales Catalogs mailed $2.50 per catalog $1 per catalog order $0.03 per dollar sales Compute the selling costs to be assigned to the "high-intensity" line of athletic wear for the month of March (1) using the traditional product costing system (direct materials cost is the cost driver), and (2) using activity-based costing. Traditional product costing Activity-based costing Seling cost to be assigned

Explanation / Answer

1) Traditional Product Costing Activity-based costing Selling cost to be assigned $ 2,74,400 $ 3,49,000 Working: Selling costs to be assigned under Traditional Product Costing = Direct Material costs x 70% = $ 3,92,000 x 70% = $ 2,74,400 Selling costs to be assigned under Actiivty-Based Costing: Activity Cost pool Cost Driver Overhead rate Number of cost driver used per Activity Cost Assigned Sales Commission Dollar sales $       0.05 per dollar sales $       9,00,000 $           45,000 Advertising-TV Minutes $        300 per minute 300 $           90,000 Advertising-Internet Coloumn inches $          10 per column inch                 2,200 $           22,000 Catalogs Catalog Mailed $       2.50 per catalog               62,500 $       1,56,250 Cost of Catalog sales Catalog orders $             1 per catalog order                 8,750 $             8,750 Credit card collection Dollar sales $       0.03 per dollar sales           9,00,000 $           27,000 Total Cost assigned $       3,49,000 2) $      74,600 Undercost Working: Selling costs to be assigned under Traditional Product Costing $       2,74,400 Selling costs to be assigned under Actiivty-Based Costing $       3,49,000 Traditional product costing undercost "high-intensity" product line $           74,600

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