Question

Exercise 18-2 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. Total Costs Products Product 540x Product 137Y Product 2495 Sales Revenue $211,000 164,000 86,000 Traditional $60,000 54,000 22,000 ABC $48,200 44,000 43,800 For each product line, compute operating income using the traditional costing system. Product 540Xs Product 137Y Product 2495 LINK TO TEXT For each product line, compute operating income using the activity-based costing system. Product 540x Product 137Y Product 2495 LINK TO TEXT Using the following formula, compute the percentage difference in operating income for each of the product lines of Ayala: [Operating Income (ABC) - Operating Income (traditional cost)] - Operating Income (traditional cost). (Round answers to 2 decimal places, e.g. 12.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Product 540x Product 137Y Product 2495

Answer 1

Operating Income under Traditional costing system :- Total Costs Operating Sales Product Revenue (A) (B) Income(A-B) Product 540X 211,000 60,000 151,000 Product 137Y 164,000 54,000 110,000 Product 249S 86,000 22,000 64,000 Operating Income under Activity based costing system :- Total Costs Operating Sales Product Revenue (A) (B) Income(A-B) Product 540X 211,000 48,200 162,800 Product 137Y 164,000 44,000 120,000 Product 2495 86,000 42,200 43,800 % difference in Operating Income for each product :- Activity Traditional Difference $ Difference % Product Based Costing (A) (C/A)*100 (B-A)=C Costing (B) Product 540X 151,000 162,800 11,800 7.81% Product 137Y 110,000 120,000 10,000 9.09% Product 2495 42,200 64,000 (21,800) -34.06%