Question
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
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 below;
Sales $2,100,000
Cost of Goods Sold $1,600,000
Gross Margin $500,000
Selling and Admin Exp $550,000
Net Oper Loss (50,000)
Hi Tek produced and sold 70k 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 costing 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 shown below
B300 T500 Total
Direct Materials 436,300 251,700 688,000
Direct Labor 200,000 104,000 304,000
Manufaturing Ovrhd 608,000
Cost of Goods Sold 1,600,000
The company has created an activity based costing system to evaluate the profitability of its products. Hi-Teks 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
Activity Cost Pool(and Activity measure) Manufacturing Overhead Activity B300 T500 Total
Machining (Machine Hours) 213,500 90,000 62,500 152,500
Setups (setup hours) 157,500 75 300 375
Product sustaining (#of Products) 120,000 1 1 2
Other (Org sustaining costs) 117,000 NA NA NA
Total Mfg Overhead cost 608,000
QUESTIONS BELOW
1. Using 6-13 as a guide, compute the product margins for the B300 and T500 under company's tradtional costing system.
2. Using 6-11 compute the product margins for B300 and T500 under activity based costing system.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started