Traditional costing method vs Activities method 1. Prepare a gross margin table

Question

Traditional costing method vs Activities method

1. Prepare a gross margin table based on traditional costing method with sales and COGS in total dollars for 2018 for both product lines

2. Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2018 for both product lines

Inc, a leading manufacturing compamy has two main lines of products Tradtional and Modern with the unit sales prices for $340 and $400 respectively. Manufacturing overhead are appied as $544.025 per direct labor hour. Bucgeted statement of gross margin 201B Traditiona Modern Sales in units 10000 5480,000.00 $600000.00 $1,080,000 00 $2,000,000.00 $3,500,000.00 $5,500,000.00 $370,370.00 185,186.00 $555,555.00 Beginning finished goods Ending finished goods Overhead breakdown in percentage 52 02% 26 59% Material Handing Tota Cost pool info for 2018 Direct labor hours Machine hours Assembly hours Material handling parts Inspection hours Traditiona Modern 2000 1000 30000 20 1000 1500 Projections 2019 Ending inventory in dollars Sales in units Traditional Modern 5260,0c0.00 $140000.00 Material, labors and overhead are expected to increase by 10% each in 2019. Unit sale prices for both products are expected to increase by $10 each in 2019 Percentage of averhead remains the same in 2019 The cost drivers units are staying the same in 2019

Explanation / Answer

Although the question also contains the information for 2019, but it is asked to prepare comparision for 2018, refer below :-

Distributing Manufacturing overhead to various cost pools :-

Allocating Manufacturing overhead based on Activities and cost pools :-

(1) Traditional Method Traditional Modern Total Sales (a) 10000 units @ $340 each $3,400,000 10000 units @ $440 each $4,400,000 $7,800,000 Direct Material $2,000,000 $3,500,000 $5,500,000 Direct Labor $370,370 $185,186 $555,556 Manufacturing overhead 2000 Hrs @ $544.025 $1,088,050 1000 Hrs @ $544.025 $544,025 $1,632,075 Total COGS (b) $3,458,420 $4,229,211 $7,687,631 Gross Margin (a-b) -$58,420 $170,789 $112,369

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