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Ayala Inc. has conducted the following analysis

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Ayala 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.


Products   Sales Revenue Traditional ABC
Product 540X  180,000  55,000  50,000
Product 137Y  160,000  50,000  35,000
Product 249S  70,000  15,000  35,000

Instructions
(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) 2 Operating Income
(traditional cost)] 4 Operating Income (traditional cost). (Round the percentage to
two decimals.)
(d) Provide a rationale as to why the costs for Product 540X are approximately the same
using either the traditional or activity-based costing system

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