Please help Kragan Clothing Company manufactures its own designed and labeled at
ID: 2420750 • Letter: P
Question
Please help
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 dollar395,000. 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. 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.Explanation / Answer
Answer:
Selling cost to be assigned as per traditional product costing:
Kargan charges selling cost at a rate of 70% of direct material cost under traditional costing method,
Direct material cost given in the question = $ 395,000
So, selling cost to be assigned = $ 395,000 x 70% = $ 276,500
Statement showing calculation of selling cost as per activity based costing Activity Cost Pools Cost Drivers Overhead Rate per activity cost driver Number of cost drivers used per activity Cost of Activity A B C D E = C x D Sales Commissions Dollar sales $ 0.05 940,000.00 $ 47,000.00 Advertising TV minutes $ 300.00 230.00 $ 69,000.00 Advertising-Internet Column inches $ 10.00 2,000.00 $ 20,000.00 Catalogs Catalogs mailed $ 2.50 62,400.00 $ 156,000.00 Cost of Catalog Sales Catalog orders $ 1.00 8,750.00 $ 8,750.00 Credit and collection Dollar sales $ 0.03 940,000.00 $ 28,200.00 Total selling cost to be assigned as per activity based costing-----------------> $ 328,950.00