Exercise 18-10 (Part Level Submission) Kragan Clothing Company manufactures its

Question

Exercise 18-10 (Part Level Submission) 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 $395,000. 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. Number of Cost Drivers Used per Activit Activity Cost PoolsCost Drivers Rate Sales commissions Advertising-TV Advertising-Internet Catalogs Cost of catalog sales Credit and collection Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales $940,000 230 2,000 62,400 8,750 940,000 $0.05 per dollar sales $300 per minute 10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales ? (a) 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 Selling cost to be assigned s LINK TO TEXT LINK TO TEXT LINK TO TEXT

Explanation / Answer

1(a) Particular Amount Traditional Selling Cost (395000*70%) 276500 1(b) Activity Base Selling Cost Selling Comission ($940000*$0.05) 47000 Advertising TV (230*$300) 69000 Advertising - internet ( 2000*$10) 20000 Catalog (62400*$2.5) 156000 Cost of Catalog Sales (8750*$1) 8750 Credit and Collection ($940000*$0.03) 28200 Activity Based Selling Cost 328950 2) $328950-$276500=$52450 Under Cost

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