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	$ 1,772,400
Cost of goods sold	1,220,061
Gross margin	552,339
Selling and administrative expenses	650,000
Net operating loss	$ (97,661)

Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $40 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	$ 400,900	$ 162,700	$ 563,600
Direct labor	$ 120,100	$ 42,900	163,000
Manufacturing overhead			493,461
Cost of goods sold			$ 1,220,061

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $53,000 and $107,000 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)	$ 200,561	90,300	62,800	153,100
Setups (setup hours)	132,000	70	230	300
Product-sustaining (number of products)	100,800	1	1	2
Other (organization-sustaining costs)	60,100	NA	NA	NA
Total manufacturing overhead cost	$ 493,461

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 Traditional Cost System Amount Total cost assigned to products Total cost B300 T500 nces Total Amount Amount % of Total Amount Amount % of Total Amount Activity-Based Costing System Direct costs: Indirect costs Total cost assigned to products Costs not assigned to products: Prev 1 of 4 !!! Next >