94)

In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the companys only two products is shown below:

	Product A				Product B				Total
Direct materials	$	436,300			$	251,700			$	688,000
Direct labor	$	200,000			$	104,000				304,000
Manufacturing overhead										608,000
Cost of goods sold									$	1,600,000

The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows:

						Activity
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead						Product A			Product B			Total
Machining (machine-hours)		$	213,500				90,000			62,500			152,500
Setups (setup hours)			157,500				75			300			375
Product design (number of products)			120,000				1			1			2
Other (organization-sustaining costs)			117,000				NA			NA			NA
Total manufacturing overhead cost		$	608,000

The companys ABC implementation team also concluded that $50,000 and $100,000 of the companys advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($400,200) was organization-sustaining in nature.

How much of the companys total costs that would be included in its traditional absorption costing income statement should not be assigned to Product A or Product B by the activity-based costing system that the company uses for internal management purposes?

Multiple Choice

• $637,200

• $400,200

• $517,200

• $117,000