E4-12 Cassel Clothing Company manufactures its own designed and labeled sports attire and sells its products through catalog sales and retail outlets. While Cassel has for years used activity-based costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Cassels product lines at a rate of 70% of direct material costs. Its direct material costs for the month of March for Cassels high intensity line of attire are $400,000. The company has decided to extend activity-based costing to its selling costs. Data relating to the high intensity line of products for the month of March are as follows.

Activity Cost Pools Sales commissions AdvertisingTV/Radio AdvertisingNewspaper Catalogs Cost of catalog sales Credit and collection InstructionsCost Drivers Dollar sales Minutes Column inches Catalogs mailed Catalog orders Dollar sales Overhead Rate $0.05 per dollar sales $300 per minute $10 per column inch $2.50 per catalog $1 per catalog order $0.03 per dollar sales Number of Cost Drivers Used per Activity $930,000 250 2,000 60,000 9,000 $930,000 (a) Compute the selling costs to be assigned to the high-intensity line of attire for the month of March: (1) using the traditional product costing system (direct material cost is the cost driver), and (2) using activity-based costing.

(b) By what amount does the traditional product costing system undercost or overcost the high-intensity product line?

(c) Classify each of the activities as value-added or nonvalue-added.