Question 1 Kragan Clothing Company manufactures its own designed and labeled ath

Question

Question 1 Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activity-based costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan's product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan's "high- intensity" line of athletic wear are $408,000. The company has decided to extend activity-based costing to its selling costs. Data relating to the "high-intensity" line of products for the month of March are as follows Overhead Number of Cost Drivers Used per Activity Activity Cost Pools Sales commissions Advertising-TV Advertising-Internet Cost Drivers Dollar sales Minutes Column inches Catalogs mailed 0.05 per dollar sales $300 per minute $941,000 290 2,000 64,500 9,450 941,000 10 per column inch $2.50 per catalog Cost of catalog sales Catalog orders Credit and collection Dollar sales 1 per catalog order 0.03 per dollar sales Compute the selling costs to be assigned to the "high-intensity" line of athletic wear for the month of March (1) using the traditional product costing system (direct materials cost is the cost driver), and (2) using activity-based costing- Traditional product costing Activity-based costing Seling cost to be assigneds O P control option command command option

Explanation / Answer

Traditional Costing:

Sales costs to be assigned = $ 408,000 x 70% = $ 285,600

Activity Based Costing:

Traditional Product Costing Activity Based Costing Selling costs to be assigned $ 285,600 $ 352,980

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