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 Cost Pool (and Activity Measure)	Manufacturing Overhead	Activity
		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 ($400,500) 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

• $517,500

• $117,000

• $637,500

• $400,500