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E4.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activitybased costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan's "high-intensity" line of athletic wear are $400,000. The company has decided to extend activity-based costing to its selling costs (for internal decision-making only). Data relating to the "high-intensity" line of products for the month of March are as follows. Activity Cost Pools Sales commissions Advertising-TV Advertising Internet Catalogs Cost of catalog sales Credit and collection Cost Drivers Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales Overhead Rate $0.05 per dollar sales $300 per minute $10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales Number of Cost Drivers Used per Activity $900,000 250 2,000 60,000 9,000 900,000 Instructions a. 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. b. By what amount does the traditional product costing system undercost or overcost the "high-intensity" product line relative to costing

E4.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activitybased costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan's "high-intensity" line of athletic wear are $400,000. The company has decided to extend activity-based costing to its selling costs (for internal decision-making only). Data relating to the "high-intensity" line of products for the month of March are as follows. Activity Cost Pools Sales commissions Advertising-TV Advertising Internet Catalogs Cost of catalog sales Credit and collection Cost Drivers Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales Overhead Rate $0.05 per dollar sales $300 per minute $10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales Number of Cost Drivers Used per Activity $900,000 250 2,000 60,000 9,000 900,000 Instructions a. 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. b. By what amount does the traditional product costing system undercost or overcost the "high-intensity" product line relative to costing

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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E4.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activitybased costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan's "high-intensity" line of athletic wear are $400,000. The company has decided to extend activity-based costing to its selling costs (for internal decision-making only). Data relating to the "high-intensity" line of products for the month of March are as follows. Activity Cost Pools Sales commissions Advertising-TV Advertising-Internet Catalogs Cost of catalog sales Credit and collection Instructions Cost Drivers Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales Overhead Rate $0.05 per dollar sales $300 per minute $10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales Number of Cost Drivers Used per Activity $900,000 Assign overhead using traditional costing and ABC. 250 2,000 60,000 9,000 900,000 a. 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. b. By what amount does the traditional product costing system undercost or overcost the "high-intensity" product line relative to costing under ABC?
Transcribed Image Text:E4.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activitybased costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan's "high-intensity" line of athletic wear are $400,000. The company has decided to extend activity-based costing to its selling costs (for internal decision-making only). Data relating to the "high-intensity" line of products for the month of March are as follows. Activity Cost Pools Sales commissions Advertising-TV Advertising-Internet Catalogs Cost of catalog sales Credit and collection Instructions Cost Drivers Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales Overhead Rate $0.05 per dollar sales $300 per minute $10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales Number of Cost Drivers Used per Activity $900,000 Assign overhead using traditional costing and ABC. 250 2,000 60,000 9,000 900,000 a. 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. b. By what amount does the traditional product costing system undercost or overcost the "high-intensity" product line relative to costing under ABC?
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