Hi-Tek Manufacturing, Inc., makes two types of industrial component ports-the B300 and the T500, An absorption costing income statement for the most recent period is shown: Hint Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,778,500 1,207,517 570,983 560,000 $ 110,9831 Hi-Tek produced and sold 60,500 units of B300 at a price of $21 per unit and 12,700 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 labo dollars as the allocation base. Additional information relating to the company's two product lines is shown below: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400,500 $ 162,900 $ 563,400 $ 120,100 $ 42,100 162,200 481,917 $ 1,207,517 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 $100,000 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. Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Manufacturing Overhead $ 203,357 116,760 101,000 60.800 Activity BJ00 T500 Total 90,800 62,100 152,900 78 200 278 1 1 2 NA NA NA 3 WELL ABB Hi-Tek produced and sold 60,500 units of B300 at a price of $21 per unit and 12,700 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: Hint Direct materials Direct labor Manufacturing overhead Cost of goods sold 3300 T500 Total $ 400,500 $ 162,900 $ 563,400 $ 120,100 $ 42,100 162,200 481,917 $ 1,207,517 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 $100,000 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 $ 203,357 116,760 101,000 60,800 $ 481,917 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 Activity B300 T500 Total 90,800 62,100 152,900 78 200 1 1 2 NA NA NA 278 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
