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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
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.
|
Total 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) _ Operating Income (traditional cost)] _ 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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