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 $ 1,644,900 1,208,936 435,964 610,000 $ (174,036) Hi-Tek produced and sold 60,300 units of 8300 at a price of $19 per unit and 12,800 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: 8300 $400,400 $ 120,700 T500 5162,400 $ 42,400 Total $562,800 Direct materials Direct labor Manufacturing overhead Cost of goods sold 163,100 483,036 $ 1,208,936 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $58,000 and $103,000 of the company's advertising expenses could be directly traced to 8300 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 $201,036 122,000 B300 90,300 Activity 7500 62,000 Total 152,300 75 230 100,000 1 1 305 2 60,000 NA NA $ 483,036 NA
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