Question

Sunland 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
Instructions
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
c) Using the following formula, compute the percentage difference in operating income for each of the product lines of Sunland:{Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost) (round the percentage to two decimals).

Answer 1

Answer: Please find answers in the explanation column

Explanation: Given

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

a) computing operating income using the traditional costing system for each product.

1) Product 540X

Operating income = Revenues - Operating cost

198,200 - 54,440= $143,760

2)) Product 137Y

Operating income = Revenues - Operating cost

158,700 - 49,090= $109,610

3) Product 249S

Operating income = Revenues - Operating cost

83,190 - 11,290 = $71,900

b) computing operating income using the activity-based costing system for each product.

1) Product 540X

Operating income = Revenues - Operating cost

198,200 - 45,520= $152,680

2)) Product 137Y

Operating income = Revenues - Operating cost

158,700 - 39,290= $119,410

3) Product 249S

Operating income = Revenues - Operating cost

83,190 - 30,010 = $53,180

c) Using the following formula, computing the percentage difference in operating income for each of the product lines of Sunland

PProduct 540X ={Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost)

= ($152,680 -$143,760)/$143,760 X 100 =8,920/143760X 100= 6.20%

Product 137Y ={Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost)

= ( $119,410 -$109,610)/$109,610 X 100 =9800/109610 X100= 8.94%

Product 249S ={Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost)

= ( $53,180-$71,900)/$71,900 X 100 =-18,720/71900X 100

= -26.04%