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 Sales Revenue Traditional ABC Product 540X $180,000 $55,000 $50,000 Product 137Y 160,000 50,000 35,000 Product 249S 70,000 15,000 35,000.

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 Ayala: [Operating Income (ABC) 2 Operating Income (traditional cost)] 4 Operating Income (traditional cost). (Round the percentage to two decimals.)

(d) Provide a rationale as to why the costs for Product 540X are approximately the same using either the traditional or activity-based costing system.AppendixLO1