Chapter 5, Problem 5.25E

1.

To determine

Simple Costing System:

Simple costing system is one of method of costing to estimate the amount of allocating the overhead cost of resources to the associated product based on the total unit to be manufactured of that product, machine and labor hour consumed to manufacture that product.

Activity Based Costing:

Activity based costing is one of the methods of costing to identify the activities performed to manufacture a product and to allocate the overhead cost of resources or indirect cost to the related products.

Income Statement:

Income statement is a business’s financial statement which tells the financial performance of a company in an accounting period. It shows the income generated by a company and expenses incurred by a company through its operations.

To prepare: Product line profitability report for HS under the simple costing system.

Given information:

Revenue from product BG is $59,500.

Cost of goods sold of product BG is $36,000.

Revenue from product MF is $66,000.

Cost of goods sold of product MF is $48,000.

Revenue from product FP is $51,000.

Cost of goods sold of product FP is $34,000.

Store support cost of product BG is $10,800.

Store support cost of product MF is $14,400.

Store support cost of product FP is $10,200.

2.

To determine

To prepare: Product line profitability report for HS under the activity based costing system.

Given information:

Gross margin of product BG is $23,500.

Gross margin of product MF is $18,000.

Gross margin of product FP is $17,000.

3.

To determine

To explain: The insight from ABC system to HS managers.