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Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. An absorption costing income statement for the most recent period
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. An absorption costing income statement for the most recent period is shown below: PMI produced and sold 60.000 units of EX300 at a price of $20 per unit and 12.500 units of TX500 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 below: The company has created an activity-based costing system to evaluate the profitability of its products. PMI's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to EX 300 and TX500. respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC learn also distributed the company's manufacturing overhead to four activities as shown below : Using Exhibit 6-12 as a guide, compute the product margins for the EX300 and TX500 under the company's traditional costing system. Using Exhibit 6-10 as a guide, compute the product margins for EX300 and TX500 under the activity-based costing system.? Using Exhibit 6-13 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignments differ
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