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Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the 8300 and the 1500. An absorption costing income statement for the most recent period
Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the 8300 and the 1500. An absorption costing income statement for the most recent period is shown Seles HE-Tek Manufacturing Incorporated Income Statement Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $1,706,000 1,218,615 487,385 600,000 $ (112,615) Hi-Tek produced and sold 60,300 units of 8300 at a price of $20 per unit and 12,600 units of 1500 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 Total Direct materials Direct labor Manufacturing overhead 3 Cost of quads sold nces 1306 $ 400,700 $120,00 $ 503,700 $1,218,15 The company has created an activity-based costing system to evaluate the profitablity of its products. Hi Tek's ABC implementation team concluded that $58,000 and $101,000 of the company's advertising expenses could be directly traced to B300 and 1500, 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 Peasure) Machining (ach) Setups (setap hours) sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead co Manufacturing Overhead $300,145 62,206 124, 101,400 79 289 $492,315 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 1500 under the activity based costing system 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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