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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 .

Hi-Tek Manufacturing, Incorporated, makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown:

Hi-Tek Manufacturing Incorporated Income Statement

Sales $ 1,703,300

Cost of goods sold 1,237,040

Gross margin 466,260

Selling and administrative expenses 640,000

Net operating loss $ (173,740)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $39 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:

B300 T500 Total

Direct materials $ 400,800 $ 162,200 $ 563,000

Direct labor $ 120,500 $ 42,400 162,900

Manufacturing overhead 511,140

Cost of goods sold $ 1,237,040

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $55,000 and $105,000 of the companys 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 companys manufacturing overhead to four activities as shown below:

Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity

B300 T500 Total

Machining (machine-hours) $ 211,140 90,700 62,300 153,000

Setups (setup hours) 138,400 76 270 346

Product-sustaining (number of products) 101,400 1 1 2

Other (organization-sustaining costs) 60,200 NA NA NA

Total manufacturing overhead cost $ 511,140 

Required:

Prepare a quantitative comparison of the traditional and activity-based cost assignments note (answers in picture are correct for question)Required 2

Required 3

 

Amount Traditional Cost System Direct labor $ 120,500 Direct materials 400,800 Manufacturing overhead Total cost assigned to products Selling and administrative Total cost Activity-Based Costing System Direct costs: Direct labor Direct materials Indirect costs: % of % of Total Amount Amount $ 42,400 162,200 511,140 521,300 $ 204,600 $ 511,140 511,140 B300 T500 % of % of Total Amount Amount Total Amount Amount Total Amount $ 120,500 $ 42,400 400,800 162,200 Machining Product sustaining Setups Total cost assigned to products $ 521,300 $ 204,600 Costs not assigned to products: Selling and administrative Other Total cost < Required 2 Required 3 > 0 $ 0

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