1.3 Activity Based Costing Analysis 120 points Zavala Manufacturing Inc. makes two types of industrial component parts- the A-100 and the Z-300. An absorption costing income statement for the most recent period is shown below Zavala Manufacturing Inc. Income Statement Sales COGS Gross Selling and administrative expenses Net operating loss-$ 2,100,000 1,600,000 500,000 in 550,000 50,000 The Company produced and sold 70,000 units of A-100 at a price of $20 per unit and 17,500 units of Z-300 at a price of $40 per unit. The company's traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown belovw A-100 Total Direct materials Direct labor Manufacturing overhead Z-300 $ 436,300251,700 688,000 $200,000 104,000304,000 608000 Cost of goods sold 1,600,000 The Company has created an activity-based costing system to evaluate the profitability of its product. Zavala's ABC implementation team concluded that S50,000 and S100,000 of the company's advertising expenses could be directly traced to A-100 and Z-300, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as shown below: Activity Activity Cost Pool (and Activity Measure) Overhead Machining (machine-hours Setups (setup hours A-100 Z-300 Total 90,000 62,500 $ 152,500 375 213,500 157,500 120,000 117,000 (number of anization-sustaining costs NA NA NA overhe ad cost Total manuf a. b. c. Compute the product margins for the A-100 and Z-300 under the company's traditional costing system Compute the product margins for A-100 and Z-300 under the activity-based costing system Prepare a quantitative comparison of the traditional and ABC costing assignments. Explain why the traditional and ABC assignments differ