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 activitie s as sho wn:
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 activitie s as sho wn:
Managerial Accounting: The Cornerstone of Business Decision-Making
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Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
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Chapter2: Basic Managerial Accounting Concepts
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
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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.
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:
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.
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