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 is shown below:
Hi-Tek Manufacturing Inc. Income Statement | ||
Sales | $ | 1,693,400 |
Cost of goods sold | 1,240,144 | |
Gross margin | 453,256 | |
Selling and administrative expenses | 570,000 | |
Net operating loss | $ | (116,744) |
Hi-Tek produced and sold 60,010 units of B300 at a price of $20 per unit and 12,600 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 | $ | 400,300 | 162,900 | $ | 563,200 | |
Direct labor | $ | 120,600 | $ | 42,100 | 162,700 | |
Manufacturing overhead | 514,244 | |||||
Cost of goods sold | $ | 1,240,144 | ||||
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $54,000 and $102,000 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:
Manufacturing | Activity | ||||
Activity Cost Pool (and Activity Measure) | Overhead | B300 | T500 | Total | |
Machining (machine-hours) | $ | 212,244 | 90,800 | 63,000 | 153,800 |
Setups (setup hours) | 139,500 | 80 | 230 | 310 | |
Product-sustaining (number of products) | 101,600 | 1 | 1 | 2 | |
Other (organization-sustaining costs) | 60,900 | NA | NA | NA | |
Total manufacturing overhead cost | $ | 514,244 | |||
1. Compute the product margins for the B300 and T500 under the companys traditional costing system.
B300 | T500 | Total | |
Product margin |
2. 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 |
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)
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