Compute the selling costs to be assigned to the

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Kragan Clothing Company manufactures its own designed and labeled sports attire and sells its products through catalog sales and retail outlets. While Kragan 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 Kragan's product lines at a rate of 70% of direct material costs. Its direct material costs for the month of March for Kragan's "high intensity" line of attire are $390,700. 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


Cost Drivers


Overhead
Rate


Number of Cost Drivers
Used per Activity

Sales commissions
Dollar sales
$0.05 per dollar sales
$920,400
Advertising-TV/Radio
Minutes
$300 per minute
290
Advertising-Newspaper
Column inches
$10 per column inch
2,000
Catalogs
Catalogs mailed
$2.50 per catalog
61,910
Cost of catalog sales
Catalog orders
$1 per catalog order
8,700
Credit and collection
Dollar sales
$0.03 per dollar sales
$920,400

(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.



Traditional product costing


Activity-based costing

Selling cost to be assigned

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

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

Activites



Sales commissions

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Advertising-TV/Radio

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Advertising-Newspaper

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Catalogs

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Cost of catalog sales

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Credit and collection

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Reference no: EM13578488

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