COTB MC Qu. 7-73 (Algo) In its first year of operations... In its first year of...

Transcribed Image Text:

COTB MC Qu. 7-73 (Algo) In its first year of operations... In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Direct materials Direct labor Product A $ 436,300 $200,000 Product B $ 251,700 Total $ 104,000 Manufacturing overhead. $ 688,000 304,000 608,000 Cost of goods sold Activity Cost Pool (and Activity Measure) $ 1,600,000 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Manufacturing Overhead Product A Activity Product B Machining (machine-hours) Setups (setup hours) Product design (number of products) Other (organization-sustaining costs) $ 213,500 157,500 120,000 117,000 90,000 62,500 Total 152,500 75 300 375 1 1 2 NA NA NA Total manufacturing overhead cost $ 608,000 Check m The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($400,600) was organization-sustaining in nature. How much of the company's total costs that would be included in its traditional absorption costing income statement should not be assigned to Product A or Product B by the activity-based costing system that the company uses for internal management purposes? COTB MC Qu. 7-73 (Algo) In its first year of operations... In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the company's only two products is shown below: Direct materials Direct labor Product A $ 436,300 $200,000 Product B $ 251,700 Total $ 104,000 Manufacturing overhead. $ 688,000 304,000 608,000 Cost of goods sold Activity Cost Pool (and Activity Measure) $ 1,600,000 The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows: Manufacturing Overhead Product A Activity Product B Machining (machine-hours) Setups (setup hours) Product design (number of products) Other (organization-sustaining costs) $ 213,500 157,500 120,000 117,000 90,000 62,500 Total 152,500 75 300 375 1 1 2 NA NA NA Total manufacturing overhead cost $ 608,000 Check m The company's ABC implementation team also concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($400,600) was organization-sustaining in nature. How much of the company's total costs that would be included in its traditional absorption costing income statement should not be assigned to Product A or Product B by the activity-based costing system that the company uses for internal management purposes?