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 | $ | 1,699,200 | |
| Cost of goods sold | | 1,211,560 | |
| Gross margin | | 487,640 | |
| Selling and administrative expenses | | 560,000 | |
| Net operating loss | $ | (72,360 | ) |
| |
Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,800 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 | $ | 400,400 | $ | 162,100 | $ | 562,500 |
| Direct labor | $ | 120,900 | $ | 42,100 | | 163,000 |
| Manufacturing overhead | | | | | | 486,060 |
| Cost of goods sold | | | | | $ | 1,211,560 |
| |
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $58,000 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 Overhead | Activity |
| Activity Cost Pool (and Activity Measure) | B300 | T500 | Total |
| Machining (machine-hours) | $ | 210,450 | | 90,200 | 62,300 | 152,500 |
| Setups (setup hours) | | 115,210 | | 71 | 210 | 281 |
| Product-sustaining (number of products) | | 100,000 | | 1 | 1 | 2 |
| Other (organization-sustaining costs) | | 60,400 | | NA | NA | NA |
| Total manufacturing overhead cost | $ | 486,060 | | | | |
| |
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.
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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,699,200 1,211,560 487,640 560,000 $ (72,360) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,800 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: B300 $ 400,400 $ 120,900 T500 $ 162,100 $ 42,100 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,500 163,000 486,060 $ 1,211,560 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 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 Overhead Activity Cost Pool (and Activity Measure) Activity T500 B300 Total Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 210,450 115,210 100,000 B300 90,200 71 1 NA Activity T500 62,300 210 1 NA Total 152,500 281 2 NA 60,400 $ 486,060 Required: 1. Compute the product margins for the B300 and 1500 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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 Required 1 Required 2 > 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product margins for B300 and 1500 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 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.) B300 T500 Total % of % of Amount Amount Amount Traditional Cost System % % % % % % Total cost assigned to products Total cost B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % % % Indirect costs: % % % % % % Total cost assigned to products Costs not assigned to products: Total cost
