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 StatementSales$1,633,200Cost of goods sold1,230,134Gross margin403,066Selling and administrative expenses580,000Net operating loss$(176,934)

Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,500 units of T500 at a price of $39 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:

B300T500TotalDirect materials$400,500$162,500$563,000Direct labor$120,900$42,500163,400Manufacturing overhead503,734Cost of goods sold$1,230,134

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $102,000 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:

Manufacturing

OverheadActivityActivity Cost Pool (and Activity Measure)B300T500TotalMachining (machine-hours)$211,55490,60062,700153,300Setups (setup hours)131,88074240314Product-sustaining (number of products)100,200112Other (organization-sustaining costs)60,100NANANATotal manufacturing overhead cost$503,734

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.

rev: 10_30_2017_QC_CS-106400, 11_01_2017_QC_CS-106400, Garrison 16e Rechecks 2018-09-27

Next Visit question map

Question 2 of 6 Total2 of 6

Prev