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9-Morton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead data for Mortons two divisions are available below. Note: All of Morton Companys products are sold in competitive markets.

Missile Salt

Products Products

Sales $1,500,000 $1,000,000

Direct labor (300,000) (800,000)

Direct materials (100,000) (40,000)

Manufacturing overhead* (150,000) (400,000)

Gross profit $950,000 ($240,000)

*Manufacturing overhead is allocated to production based on the amount of direct labor cost.

Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of batch-level costs and product line costs. Morton has assembled the following information concerning the manufacturing overhead costs, the annual number of production batches, and the number of product lines in each division.

Total

Manufacturing

Overhead Missile Salt

Costs Products Products

Batch-level overhead $250,000 10 batches 90 batches

Product line overhead 300,000 3 lines 7 lines

$550,000

Which ONE of the following statements is MOST CORRECT?

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $260,000. If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $35,000. If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $260,000. If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $35,000. If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have increased by $285,000. If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have decreased by $285,000.

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