Exercise 4-2 Ayala Inc. has conducted the following analysis related to its prod

Question

Exercise 4-2 Ayala Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system Both the traditional and the activity-based costing systems include direct materials and direct labor costs. Total Costs Sales Revenue Traditional ABC Products Product 540X Product 137Y Product 2495 196,000 $56,000 $46,400 52,00025,000 23,00059,600 162,000 79,000 For each product line, compute operating income using the traditional costing system. Product 540X Product 137Y Product 2495

Explanation / Answer

a) Operating Income using Traditional Costing Sales revenue (A) Total Costs under Traditional Costing (B) Operating Income(C=A-B) Product 540X 196000 56000 140000 Product 137Y 162000 52000 110000 Product 249S 79000 23000 56000 b) Operating Income using Activity Based Costing (ABC) Sales revenue (A) Total Costs under ABC (B) Operating Income(C=A-B) Product 540X 196000 46400 149600 Product 137Y 162000 25000 137000 Product 249S 79000 59600 19400 c) Operating Income under Traditional Costing (a) Operating Income under ABC (b) % difference in Operating Income (c=(b-a)/a*100) 140000 149600 6.86 % 110000 137000 24.55 % 56000 19400 -65.36 %

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