Reference no: EM13482134

Kragan Clothing Company manufactures its own designed and labeled sports attire and sells its products through catalog sales and retail outlets. While Kragan has for years used activity-based costing in its manufacturing activities, it has 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 material costs. Its direct material costs for the month of March for Kragan's "high intensity" line of attire are $400,000. The company has decided to extend activity-based costing to its selling costs. Data relating to the "high intensity" line of products for the month of March are as follows.

Activity Cost Pools		Cost Drivers		Overhead Rate			Number of Cost Drivers Used per Activity
Sales commissions		Dollar sales		$0.05	per dollar sales		$900,000
Advertising-TV/Radio		Minutes		$300	per minute		250
Advertising-Newspaper		Column inches		$10	per column inch		2,000
Catalogs		Catalogs mailed		$2.50	per catalog		60,000
Cost of catalog sales		Catalog orders		$1	per catalog order		9,000
Credit and collection		Dollar sales		$0.03	per dollar sales		$900,000

(a) Compute the selling costs to be assigned to the "high-intensity" line of attire for the month of March: (1) using the traditional product costing system (direct material cost is the cost driver), and (2) using activity-based costing.

		Traditional product costing		Activity-based costing
Selling cost to be assigned		$		$

(b) By what amount does the traditional product costing system undercost or overcost the "high-intensity" product line?

$