Problem:
Perdon Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system. Both the traditional and the activity-based costing systems include direct materials and direct labor costs.
Total Costs
Products Sales Revenue Traditional ABC
Product 540X $200,000 $55,000 $50,000
Product 137Y 160,000 50,000 35,000
Product 249S 80,000 15,000 35,000
Instructions:
(a) For each product line, compute operating income using the traditional costing system.
(b) For each product line, compute operating income using the activity-based costing system.