Drake Manufacturing sells a number of goods whose selling price is heavily influenced by cost. A recent study of product no. 520 revealed a traditionally-derived total cost of $1,623 and a selling price of $1,850 based on that figure. A newly computed activity-based total cost is $1,215. Which of the following statements is true?
A) All other things being equal, Drake should consider increasing its sales price.
B) Drake should increase the product's selling price to maintain the same markup percentage.
C) Product no. 520 could be labeled as being overcosted by Drake's traditional costing procedures.
D) If product no. 520 is undercosted by traditional accounting procedures, then all of Drake's other products must be undercosted as well.
E) Generally speaking, the activity-based cost figure is "less accurate" than the traditionally-derived cost figure.

Question

Quizplus · Accepted Answer

The activity-based costing method shows a lower cost than the traditional method, indicating that the product was overcosted using traditional costing procedures.

Drake Manufacturing Sells a Number of Goods Whose Selling Price