I have attached the Questions and teh Answer. Please review the Manufacturing overhead calculation is the traditional costing system (Question number 1). Could you please explain how the values $400,000 and $208,000 has been calculated. Could you please verify if the manufacturing overhead calculation in the question number one is correct. If the calculation is wrong, could you please provide the correct calculation and the answer. Please explain in detail for a positive rating.

Questions:

Hi-Tek Manufacturing Inc. makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing Inc
Income Statement
Sales	$2,100,000
Cost of goods sold	1,600,000
Gross margin	500,000
Selling and administrative expenses	550,000
Net operating loss	$(50,000)

Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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	T500	Total
Direct materials	$436,300	$251,700	$688,000
Direct labor	$200,000	$104,000	304,000
Manufacturing overhead			608,000
Cost of goods sold			$1,600,000

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 $100,000 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
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead	B300	T500	Total
Machining (machine-hours)	$213,500	90,000	62,500	152,500
Setups (setup hours)	157,500	75	300	375
Product-sustaining (number of products)	120,000	1	1	2
Other (organization-sustaining costs)	117,000	NA	NA	NA
Total manufacturing overhead cost	$608,000

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.

Answer

1.

Product margin under the traditional costing system is calculated as follow:

	Particulars	Total		Per unit
		B300	T500	B300	T500
	No. of units sold	70,000	17,500	70,000	17,500
	Sales	1,400,000	700,000	20	40
	Cost of goods sold
Less:	Direct material	436,300	251,700	6.23	14.38
Less:	Direct labor	200,000	104,000	2.86	5.94
Less:	Manufacturing overhead	400,000	208,000	5.71	11.89
	Product margin	363,700	136,300	5.20	7.79

Product Margin % (B300) = $5.20/$20 = 26.0%

Product Margin % (T500) = $7.79/$40 = 19.5%