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 below:
Hi-Tek Manufacturing Inc. Income Statement
Sales $ 1,655,800
Cost of goods sold 1,226,892
Gross margin 428,908
Selling and administrative expenses 570,000
Net operating loss $ (141,092)
Hi-Tek produced and sold 60,200 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 $ 400,400 $ 162,000 $ 562,400
Direct labor $ 120,100 $ 42,100 162,200
Manufacturing overhead 502,292
Cost of goods sold $ 1,226,892
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 $108,000 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 Activity Activity Cost Pool (and Activity Measure)
Overhead B300 T500 Total Machining (machine-hours)
$ 202,752 90,700 62,900 153,600
Setups (setup hours) 136,740 78 240 318
Product-sustaining (number of products)
102,000 1 1 2
Other (organization-sustaining costs)
60,800 NA NA NA
Total manufacturing overhead cost $ 502,292
1. Compute the product margins for the B300 and T500 under the companys traditional costing system. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)
2. 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.)
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