Question
Hi-Tek Manufacturing, Inc., makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is
Hi-Tek Manufacturing, Inc., 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 Inc .
Income Statement Sales | $ 1,659,600 |
Cost of goods sold | $1,230,949 |
Gross margin | 428,651 |
Selling and administrative expenses | 570,000 |
Net operating loss | $ (141,349 ) |
Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,800 units of T500 at a price of $40 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 | $ 400,700.00 | $ 162,500.00 | $ 563,200.00 |
Direct Labor | $ 120,100.00 | $ 42,500.00 | $ 162,600.00 |
Manufacturing Overhead | $ 505,149.00 | ||
Cost of goods sold | $ 1,230,949.00 |
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $51,000 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 | ||||
Activity Cost Pool (and Activity Measure) | Manufacturing Overhead | B300 | T500 | Total |
Machining (machine-hours) | $ 212,809 | $ 90,900.00 | $ 62,200.00 | $ 153,100.00 |
Setups (setup hours) | $ 130,240 | 76 | 220 | 296 |
Product-sustaining (number of products) | $ 101,200 | 1 | 1 | 2 |
Other (organization-sustaining costs) | $ 60,900 | NA | NA | NA |
Total manufacturing overhead cost | $ 505,149 |
Required:
1. Compute the product margins for the B300 and T500 under the companys traditional costing system.
2. Compute the product margins for B300 and T500 under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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