Vaughn Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Vaughn has for years used activity-based 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 Vaughn's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Vaughn's "high-intensity" line of athletic wear are $396,000. 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 Dolladsales Minutes Column inches Catalogs mailed Catalog orders Dollar sales eTextbook and Media $ Selling cost to be assigned I Overhead. Rate $0.05 $300 per minute $10 per column inch $2.50 per catalog per dollar sales $1 per catalog order $0.03 per dollar sales Traditional product costing 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. Number of Cost Drivers Used per Activity $925,000 $ 260 2,000 60,100 9,150 $925,000 Activity-based costing By what amount does the traditional product costing system understate or overstate the "high-intensity product line?
Vaughn Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Vaughn has for years used activity-based 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 Vaughn's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Vaughn's "high-intensity" line of athletic wear are $396,000. 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 Dolladsales Minutes Column inches Catalogs mailed Catalog orders Dollar sales eTextbook and Media $ Selling cost to be assigned I Overhead. Rate $0.05 $300 per minute $10 per column inch $2.50 per catalog per dollar sales $1 per catalog order $0.03 per dollar sales Traditional product costing 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. Number of Cost Drivers Used per Activity $925,000 $ 260 2,000 60,100 9,150 $925,000 Activity-based costing By what amount does the traditional product costing system understate or overstate the "high-intensity product line?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Vaughn Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and
retail outlets. While Vaughn has for years used activity-based 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 Vaughn's product lines at a
rate of 70% of direct materials costs. Its direct materials costs for the month of March for Vaughn's "high-intensity" line of athletic
wear are $396,000. 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
Dollasales
Minutes
Column inches
Catalogs mailed
Catalog orders
Dollar sales
eTextbook and Media
$
Selling cost to be assigned I
Overhead.
Rate
$0.05
$300 per minute
$10 per column inch
$2.50 per catalog
per dollar sales
$1 per catalog order
$0.03 per dollar sales
Traditional product costing
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.
Number of Cost
Drivers
Used per Activity
$925,000
$
260
2,000
60,100
9,150
$925,000
Activity-based costing
By what amount does the traditional product costing system understate or overstate the "high-intensity product line?
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