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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
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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,714,000 1,232,910 481,090 570,000 $ (88,910) Hi-Tek produced and sold 60, 100 units of B300 at a price of $20 per unit and 12,800 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: B300 $ 400,900 $ 120,500 T500 $ 162,300 $ 42,600 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,200 163, 100 506,610 $ 1,232,910 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $56,000 and $106,000 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 $ 202,620 143,190 100,200 60,600 $ 506,610 B300 90,700 73 1 NA Activity T500 62,800 260 1 NA Total 153,500 333 2 NA 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 T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Required 1 Required 2 Required 3 Compute the product margins for the B300 and T500 under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin $ 0 Required 1 Required 2 Required 3 Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin $ 0 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. {Round your intermediate calculations to 2 decimal places and "Percentage* answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 % of % of Total Amount Amount Amount Traditional Cost System Total cost assigned to products $ $ 0 $ 0 $ 0 Total cost $ 0 B300 T500 Total Amount % of Total Amount % of Total Amount Amount Amount Activity-Based Costing System Direct costs: Indirect costs: $ 0 $ 0 0 Total cost assigned to products Costs not assigned to products: Total cost $ 0 Required 2 Required 3 > References Worksheet Leaming Objective07-01 Understand activity-based costing and how it differs from a traditional costing system Learning Objective: 07-04 Assign costs to a cost object using a second-stage allocation Difficulty: 2 Medium Learning Objective: 07-03 Compute activity rates for cost pools Learning Objective: 07-05 Use activity-based costing to compute product and customer margins
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