Question

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.

Products Sales Revenue Traditional ABC
Product 540X 198,200 54,440 45,520
Product 137Y 158,700 49,090 39,290
Product 249S 83,190 11,290 30,010

Required:
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

Answer 1

a). Operating the income using traditional costing system

Products Sales revenue($) Traditional($) Operating income($)

( A ) ( B ) ( A - B )

540X 198,200 54,440 143,760

137Y 158,700 49,090 109,610

249S 83,190 11,290 71,900

b). Operating income using the activity-based costing system

Products Sales revenue($) Traditional($) Operating income($)

( A ) ( B ) ( A - B )

540X 198,200 45,520 152,680

137Y 158,700 39,290 119,410

249S 83,190 30010 53,180