Question

Marigold 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
Products		Sales Revenue		Traditional		ABC
Product 540X		$207,000		$54,000		$48,700
Product 137Y		155,000		50,000		33,000
Product 249S		85,000		11,000		33,300

(a)

For each product line, compute operating income using the traditional costing system.

Product 540X		$enter a dollar amount
Product 137Y		$enter a dollar amount
Product 249S		$enter a dollar amount

structions
a) For each product line, compute operating income using the traditional costing system.
b) For each product line, compute operating income using the activity-based costing system
c) Using the following formula, compute the percentage difference in operating income for each of the product lines of Ayala:{Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost)(round the percentage to two decimals).

Answer 1

Requirement a:

Under traditional costing system:
Product 540X	$      153,000	207000-54000
Product 137Y	$      105,000	155000-50000
Product 249S	$         74,000	85000-11000

Requirement b:

Under ABC costing system:
Product 540X	$      158,300	207000-48700
Product 137Y	$      122,000	155000-33000
Product 249S	$         51,700	85000-33300

Requirement c:

percentage difference in operating income for each of the product lines is:

Product 540X	3.46%	(158300-153000)/153000
Product 137Y	16.19%	(122000-105000)/105000
Product 249S	-30.14%	(51700-74000)/74000