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 StatementSales$1,643,800Cost of goods sold1,234,636Gross margin409,164Selling and administrative expenses580,000Net operating loss$(170,836)
Hi-Tek produced and sold 60,200 units of B300 at a price of $19 per unit and 12,500 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:
B300T500TotalDirect materials$400,700$162,800$563,500Direct labor$120,300$42,400162,700Manufacturing overhead508,436Cost of goods sold$1,234,636
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $54,000 and $109,000 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)$202,35690,60062,700153,300Setups (setup hours)143,88077250327Product-sustaining (number of products)102,000112Other (organization-sustaining costs)60,200NANANATotal manufacturing overhead cost$508,436
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.
quantitative comparison of the traditional and activity-based cost assignments.
Compute the product margins for the B300 and T500 under the company's traditional costing system.(Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)
B300 T500 Total
Product margin ? ? $ ?
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 ? ? $ ?
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.)
B300T500Total% of% ofAmountAmountAmountTraditional Cost System%%%%%%Total cost assigned to products$
0$
0$
0Total cost$
0B300T500Total% of% ofAmountTotal AmountAmountTotal AmountAmountActivity-Based Costing SystemDirect costs: %% %% %%Indirect costs: %% %% %%Total cost assigned to products$
0$
00Costs not assigned to products: Total cost$
0
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