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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
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 $ 1,705,300 1,228,452 476,848 630,000 $ (153,152) Hi-Tek produced and sold 60,500 units of B300 at a price of $20 per unit and 12,700 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 B300 $ 400,700 $ 162,800 $ 120,100 $ 42,900 T500 Total $ 563,500 163,000 501,952 $ 1,228,452 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $52,000 and $104,000 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 $ 211,692 129,360 100,600 8300 91,000 Activity T500 Total 62,400 153,400 78 1 230 308 1 2 60,300 NA NA NA $ 501,952 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. 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. Required 1 Required 2 Required 3 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.) B300 T500 Total Product margin $ 339,432 $ (18,583) $ 320,849 Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) Book Amount B300 % of Amount T500 % of Total Amount Traditional Cost System Hint Direct labor $ 120,100 $ 42,900 $ 163,000 Direct materials 400,700 162,800 563,500 Manufacturing overhead 369,843 132,108 501,952 Total cost assigned to products $ 890,643 $ 337,808 $ 1,228,452 Selling and administrative 520,000 Total cost $ 1,748,452 Activity-Based Costing System Direct costs: Direct labor Direct materials Advertising expense Indirect costs: Machining Setups B300 T500 % of % of Total Amount Amount Total Amount Amount Total Amount $ 120,100 $ 42,900 400,700 162,800 52,000 104,000 Product sustaining Total cost assigned to products $ 572,800 $ 309,700 Costs not assigned to products: Other Selling and administrative Total cost
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