Question
Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is
Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss [$1","755","900],[1","218","952],[536","948],[570","000],[$(33","052)] Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,500 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:Direct materials Direct labor Manufacturing overhead Cost of goods sold Total 563,000 162,800 493, 152 1,218,952 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $55,000 and $ 108,000 of the company's advertising expenses could be directly traced to 8300 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 Cast 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 206,092 125,560 101,200 60,300 493,152 91,000 72 1 NA Activity 7500 62,800 220 1 Total 153,800 292 2 NA NA 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
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