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 Hi-Tek Manufacturing Inc. Income Statement Sales 3 1,653, 700 Cost of goods sold 1,235,700 Cross margin 417.994 Selling and adainistrative expenses 600,000 Net operating loss 3 (182, 006) Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit. The company's 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 company's two product lines is shown below: B300 7500 Total Direct materials $ 400,000 $102, 2003 502, 800 Direct labor $ 120,100 $ 42, 400 102,500 Manufacturing overhead 510, 406 Cost of goods sold $ 1.235, 706 B300 T500 Total % of % of Amount Amount Amount S % S Traditional Cost System Direct materials Direct labor Manufacturing overhead Total cost assigned to products Selling and administrative Total cost 400,600 120,100 377,229 897,929 % % 162,200 42,400 133, 177 337,777 % $ 562.800 % 162.500 9 510.408 $ 1,235,706 $ s $ 1,235,706 B300 T500 Total % of Total Amount % of Total Amount Amount Amount Amount $ % $ 400,600 120,100 207,966 % % 162.2001 42,400 241,740 % $ % % 562 800 162,500 449,706 Activity-Based Costing System Direct costs Direct materials Direct labor Advertising expense Indirect costs Machining Setups Product sustaining Total cost assigned to products Costs not assigned to products Selling and administrative % 9 % % % %/ S 728,666 S 446,340 1,175006 Total cost $ 1,175,006 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 Hi-Tek Manufacturing Inc. Income Statement Sales 3 1,653, 700 Cost of goods sold 1,235,700 Cross margin 417.994 Selling and adainistrative expenses 600,000 Net operating loss 3 (182, 006) Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit. The company's 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 company's two product lines is shown below: B300 7500 Total Direct materials $ 400,000 $102, 2003 502, 800 Direct labor $ 120,100 $ 42, 400 102,500 Manufacturing overhead 510, 406 Cost of goods sold $ 1.235, 706 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 and $106.000 of the company's advertising expenses could be directly traced to B300 and 1500. 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 Cand Activity Measure) Machining (nachine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead 3 212,100 136,000 101, 600 60, 700 $ 510, 406 Activity B300 T500 Total 90,700 63,000 153, 700 80 260 340 1 1 2 NA NA NA Required: 1. Compute the product margins for the B300 and T500 under the company's 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. B300 T500 Total % of % of Amount Amount Amount S % S Traditional Cost System Direct materials Direct labor Manufacturing overhead Total cost assigned to products Selling and administrative Total cost 400,600 120,100 377,229 897,929 % % 162,200 42,400 133, 177 337,777 % $ 562.800 % 162.500 9 510.408 $ 1,235,706 $ s $ 1,235,706 B300 T500 Total % of Total Amount % of Total Amount Amount Amount Amount $ % $ 400,600 120,100 207,966 % % 162.2001 42,400 241,740 % $ % % 562 800 162,500 449,706 Activity-Based Costing System Direct costs Direct materials Direct labor Advertising expense Indirect costs Machining Setups Product sustaining Total cost assigned to products Costs not assigned to products Selling and administrative % 9 % % % %/ S 728,666 S 446,340 1,175006 Total cost $ 1,175,006
