Posted: April 10th, 2024

Kragan Clothing Company manufactures its own designed and labeled

E4-12Kragan 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 traditionalcosting 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 di- rect material costs for the month of March for Kragan’s “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.Number of CostActivity Cost PoolsCost DriversOverheadRateDrivers Usedper ActivitySales commissionsDollar sales$0.05 per dollar sales$900,000Advertising—TV/RadioMinutes$300 per minute250Advertising—NewspaperColumn inches$10 per column inch2,000CatalogsCatalogs mailed$2.50 per catalog60,000Cost of catalog salesCatalog orders$1 per catalog order9,000Credit and collectionDollar sales$0.03 per dollar sales$900,000Instructions(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?

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