Question
Hi-Tek Manufacturing, Incorporated, 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, Incorporated, makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown:
Hi-Tek Manufacturing Incorporated Income Statement | |
Sales | $ 1,695,400 |
---|---|
Cost of goods sold | 1,240,316 |
Gross margin | 455,084 |
Selling and administrative expenses | 640,000 |
Net operating loss | $ (184,916) |
Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 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 | $ 400,700 | $ 162,800 | $ 563,500 |
Direct labor | $ 120,700 | $ 42,900 | 163,600 |
Manufacturing overhead | 513,216 | ||
Cost of goods sold | $ 1,240,316 |
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $59,000 and $101,000 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:
Activity Cost Pool (and Activity Measure) | Manufacturing Overhead | Activity | ||
---|---|---|---|---|
B300 | T500 | Total | ||
Machining (machine-hours) | $ 208,216 | 90,500 | 62,600 | 153,100 |
Setups (setup hours) | 143,500 | 70 | 280 | 350 |
Product-sustaining (number of products) | 101,400 | 1 | 1 | 2 |
Other (organization-sustaining costs) | 60,100 | NA | NA | NA |
Total manufacturing overhead cost | $ 513,216 |
Required:
1. Compute the product margins for the B300 and T500 under the companys 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.
B300 T500 % of % of Total Amount Amount Amount Traditional Cost System Total cost assigned to products $ 0 $ 0 $ 0 Total cost $ B300 T500 % of Total Amount % of Total Amount Amount Amount Total Amount Activity-Based Costing System Direct costs: Indirect costs: $ 0 $ 0 Total cost assigned to products Costs not assigned to products: Total cost $Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started