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Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 2,100,000 1,600,000 500,000 550,000 (50,000) Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 units of T500 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: B300 T500 Total Direct materials Direct labor Manufacturing overhead 436,300 251,700 688,000 304,000 608,000 1,600,000 200,000 104,000 Cost of goods sold B300 T500 Total Direct materials Direct labor Manufacturing overhead 436,300 251,700 688,000 304,000 608,000 1,600,000 200,000 104,000 Cost of goods sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to B300 and T500 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 below: Activit Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead s 213,500 157,500 120,000 117,000 608,000 B300 T50 90,000 62,500 152,500 375 NA NA NA Required 1. Compute the product margins for the B300 and T500 under the company's traditional costing system 2. Compute the product margins for B300 and T500 under the activity-based costing systemm 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments Required 1Required 2 Required 3 Compute the product margins for the B300 and T500 under the company's traditional costing system 300 T500 Total Product margin Required 1 Required 2 Required 3 Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate decimal places and "Percentage" answers to 1 decimal place.) B300 T500 Total %of %of Amount Total Amount Amount Total Amount Amount Traditional Cost System Total cost assigned to products Total cost B300 T500 %of %of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs Indirect costs: Total cost assigned to products Costs not assigned to products: Total cost
