FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

bartleby

Concept explainers

Question

1 - Explain why the traditional and activity-based cost assignments differ.

2 - What advice would you give the management of Jackson Manufacturing regarding pricing of products in the future.

Jackson Manufacturing, Inc., makes two types of industrial component parts-the XT-
100 and the LT-200. An absorption costing income statement for the most recent period
is shown:
Jackson Manufacturing Inc.
Income Statement
Sales
$2,100,000
Cost of goods sold
1,600,000
Gross margin
500,000
Selling and administrative expenses
550,000
Net operating loss
$ (50,000)
Table Summary: Income statement with two-line heading. Descriptions of income
items are in first column and dollar values in second column.
Jackson produced and sold 70,000 units of XT-100 at a price of $20 per unit and 17,500
units of LT-200 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:
XT-100
LT-200
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 has created an activity-based costing system to evaluate the profitability
of its products. Jackson's ABC implementation team concluded that $50,000 and
$100,000 of the company's advertising expenses could be directly traced to XT-100 and
LT-200, respectively. The remainder of the selling and administrative expenses was
organization-sustaining in nature. The ABC team also distributed the company's
manufacturing overhead to four activities as shown:
expand button
Transcribed Image Text:Jackson Manufacturing, Inc., makes two types of industrial component parts-the XT- 100 and the LT-200. An absorption costing income statement for the most recent period is shown: Jackson Manufacturing Inc. Income Statement Sales $2,100,000 Cost of goods sold 1,600,000 Gross margin 500,000 Selling and administrative expenses 550,000 Net operating loss $ (50,000) Table Summary: Income statement with two-line heading. Descriptions of income items are in first column and dollar values in second column. Jackson produced and sold 70,000 units of XT-100 at a price of $20 per unit and 17,500 units of LT-200 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: XT-100 LT-200 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 has created an activity-based costing system to evaluate the profitability of its products. Jackson's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to XT-100 and LT-200, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as shown:
Activity
Activity Cost Pool (and
Activity Measure)
Manufacturing
Overhead
XT-100
LT-200
Total
Machining (machine-hours) $213,500
90,000
62,500
152,500
Setups (setup hours)
157,500
75
300
375
Product-sustaining (number
of products)
120,000
1
1
Other (organization-
sustaining costs)
117,000
NA
NA
NA
Total manufacturing
overhead cost
$608,000
Table Summary: Table shows activity data for two products. First column lists activity
cost pools and activity measures. Second column shows manufacturing overhead for
each cost pool. Columns 3-5 show activity numbers for the two products and their
totals. The XT-100, LT-200, and Total columns are under the spanner heading
Activity.
Required:
1. Compute the product margins for the XT-100 and LT-200 under the
company's traditional costing system.
2. Compute the product margins for XT-100 and LT-200 under the activity-based
costing system.
3. Explain why the traditional and activity-based cost assignments differ.
4. What advice would you give the management of Jackson Manufacturing
regarding pricing of products in the future.
2.
expand button
Transcribed Image Text:Activity Activity Cost Pool (and Activity Measure) Manufacturing Overhead XT-100 LT-200 Total Machining (machine-hours) $213,500 90,000 62,500 152,500 Setups (setup hours) 157,500 75 300 375 Product-sustaining (number of products) 120,000 1 1 Other (organization- sustaining costs) 117,000 NA NA NA Total manufacturing overhead cost $608,000 Table Summary: Table shows activity data for two products. First column lists activity cost pools and activity measures. Second column shows manufacturing overhead for each cost pool. Columns 3-5 show activity numbers for the two products and their totals. The XT-100, LT-200, and Total columns are under the spanner heading Activity. Required: 1. Compute the product margins for the XT-100 and LT-200 under the company's traditional costing system. 2. Compute the product margins for XT-100 and LT-200 under the activity-based costing system. 3. Explain why the traditional and activity-based cost assignments differ. 4. What advice would you give the management of Jackson Manufacturing regarding pricing of products in the future. 2.
Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education