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E17.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled...

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Accounting

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E17.10 (LO 1, 2, 3), AP Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its product through catalog sales and retail outlets. While Kragan has for years used activitybased costing in its manufacturing activities, it ha 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 materials costs. Its direct materials costs for the month of March for Kragan's "high-intensity" line of athletic wear are $400,000. The company has decided to extend activity-based costing to its selling costs (for internal decision-making only). Data relating to the "high-intensity" line of products for the month of March are as follows. a. Compute the selling costs to be assigned to the "high-intensity" line of athletic wear for the month of March (1) using the traditional product costing system (direct materials 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 relative costing under ABC ? Assign overhead using traditional costing and ABC

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