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Hi - Tek Manufacturing, Incorporated, makes two types of industrial component parts the B 3 0 0 and the T 5 0 0 . An
HiTek Manufacturing, Incorporated, makes two types of industrial component partsthe Band the TAn absorption costing income statement for the most recent period is shown:
HiTek Manufacturing Incorporated
Income Statement
Sales $
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating loss $
HiTek produced and sold units of Bat a price of $per unit and units of Tat a price of $per unit. The companys 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 companys two product lines is shown below:
BTTotal
Direct materials $ $ $
Direct labor $ $
Manufacturing overhead
Cost of goods sold $
The company has created an activitybased costing system to evaluate the profitability of its products. HiTeks ABC implementation team concluded that $and $of the companys advertising expenses could be directly traced to Band Trespectively The remainder of the selling and administrative expenses was organizationsustaining in nature. The ABC team also distributed the companys manufacturing overhead to four activities as shown below:
Activity Cost Pool and Activity MeasureManufacturing Overhead Activity
BTTotal
Machining machinehours$
Setups setup hours
Productsustaining number of products
Other organizationsustaining costsNA NA NA
Total manufacturing overhead cost $
Required:
Compute the product margins for the Band Tunder the companys traditional costing system.
Compute the product margins for Band Tunder the activitybased costing system.
Prepare a quantitative comparison of the traditional and activitybased cost assignments.
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