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Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek
Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 2,100,000 1,600,000 500,000 550,000 $ (50,000) Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 436,300 $ 251,700 $ 200,000 $ 104,000 $ 688,000 304,000 608,000 $ 1,600,000 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to B300 and T500, The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 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) Total manufacturing overhead cost Required: Manufacturing Overhead $ 213,500 157,500 120,000 B300 90,000 Activity T500 Total 62,500 152,500 75 1 300 1 375 2 117,000 $ 608,000 1. Compute the product margins for 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. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Note: Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place. B300 T500 % of Amount Total Amount Amount % of Total Amount Total Amount Traditional Cost System Total cost assigned to products $ 0 $ 0 $ 0 Total cost $ 0 B300 T500 % of % of Amount Amount Total Amount Amount Total Amount Activity-Based Costing System Direct costs: Activity-Based Costing System Direct costs: Indirect costs: B300 % of T500 % of Amount Total Amount Amount Amount Total Amount Total cost assigned to products Costs not assigned to products: $ 0 $ 0 $ 0 Total cost $ 0
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