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Solutions Chap 4 - EXERCISE 4-2(a Traditional costing...

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EXERCISE 4-2 (a) Traditional costing system Product 540X Product 137Y Product 249S Sales $200,000 $160,000 $80,000 Costs 55,000 50,000 15,000 Operating income $145,000 $110,000 $65,000 (b) Activity-based costing system Product 540X Product 137Y Product 249S Sales $200,000 $160,000 $80,000 Costs 50,000 35,000 35,000 Operating income $150,000 $125,000 $45,000 (c) Product 540X: ($150,000 – $145,000) ÷ $145,000 = 3.45% Product 137Y ($125,000 – $110,000) ÷ $110,000 = 13.64% Product 249S ($45,000 – $65,000) ÷ $65,000 = (30.77%) (d) These costs are similar probably because the cost drivers are essentially the same; that is, they are based on a unit volume concept. EXERCISE 4-3
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(a) Activity cost pools Cost drivers Estimated overhead Cutting Machine hours $300,000 Design Number of setups 600,000 Activity-based overhead rates Cutting Design $300,000 = $1.50 per machine hour $600,000 = $400 per setup 200,000 1,500 Wool Cotton Activity-based costing Cutting 100,000 X $1.50 $150,000 100,000 X $1.50 $150,000 Design 1,000 X $400 400,000 500 X $400 200,000 Total cost allocated $550,000 $350,000 (b) Estimated overhead = $900,000 = $2 per direct labor hour Direct labors hours 450,000 Wool Cotton Traditional costing 225,000 X $2 $450,000 225,000 X $2 $450,000 The wool product line is allocated $100,000 ($550,000 – $450,000) more overhead cost when an activity-based costing system is used. As a result, the cotton product line is allocated $100,000 ($450,000 – $350,000) less.
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