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
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 $ 1,712,000 1,230,552 481,448 640,000 $ (158,552) HI-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,700 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 $ 400,900 $ 120,900 1500 $ 162,600 $ 42,600 Total $ 563,500 163,500 503,552 $ 1,230,552 The company has created an activity-based costing system to evaluate the profitability of its products. HI-Tek's ABC Implementation team concluded that $51,000 and $101,000 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 Manufacturing Overhead Activity $ 202,092 140,360 101,000 B300 90,900 T500 62,200 79 240 1 1 Total 153,100 319 2 60,100 NA NA NA $ 503,552
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