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 | $ | 1,772,400 |
Cost of goods sold | 1,223,314 | |
Gross margin | 549,086 | |
Selling and administrative expenses | 560,000 | |
Net operating loss | $ | (10,914) |
Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,600 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 | $ | 400,200 | $ | 162,400 | $ | 562,600 |
Direct labor | $ | 120,600 | $ | 42,300 | 162,900 | |
Manufacturing overhead | 497,814 | |||||
Cost of goods sold | $ | 1,223,314 | ||||
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 $105,000 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) | $ | 211,554 | 90,600 | 62,700 | 153,300 |
Setups (setup hours) | 125,460 | 76 | 230 | 306 | |
Product-sustaining (number of products) | 100,200 | 1 | 1 | 2 | |
Other (organization-sustaining costs) | 60,600 | NA | NA | NA | |
Total manufacturing overhead cost | $ | 497,814 | |||
Required |
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.) |
3. | Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.) |
traditional costing system and an activity based costing system. (amount and percentage of total amount for B300 and T500, then total amount |
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