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Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the 8300 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 8300 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 $ 1,644,800 1,235,819 408,981 570,000 $ (161,019) Hi-Tek produced and sold 60,500 units of B300 at a price of $19 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 $ 400,300 $ 120,800 T500 $ 163,000 $ 42,300 Total $ 563,300 163,100 509,419 $ 1,235,819 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 and $108,000 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) Manufacturing Overhead $ 209,199 139,920 100.200 B300 90,400 Activity T500 62,300 Total 152,700 78 1 240 318 1 2
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