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Question - Ayala Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system. Both the traditional and the activity-based costing systems include direct materials and direct labor costs.
Product
Sales Revenue
Total Cost
Traditional
ABC
Product 540X
$212,000
$58,000
$45,900
Product 137Y
165,000
50,000
39,000
Product 249S
82,000
20,000
43,100
(a) For each product line, compute operating income using the activity-based costing system.
(b) Using the following formula, compute the percentage difference in operating income for each of the product lines of Ayala:{Operating Income (ABC)-Operating Income traditional cost)]divided operating Income (traditional cost)(round the percentage to two decimals).
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