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.

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.

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%

2.

Product margin under activity-based 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 (Notes)	217,500	273,500	3.11	15.63
Less:	Selling and admin exp.	50,000	100,000	0.71	5.71
	Product margin	496,200	(29,200)	7.09	(1.67)

Product Margin % (B300) = $7.09/$20 = 35.4%

Product Margin % (T500) = -$1.67/$40 = -4.2%

Notes:

Activity	Total overhead cost	Total cost driver	Overhead rate	B300		T500	Overhead cost assigned
				Driver incurred	Overhead cost assigned	Driver incurred
Machining	213,500	152,500	1.40	90,000	126,000	62,500	87,500
Setup	157,500	375	420	75	31,500	300	126,000
Product sustaining	120,000	2	60,000	1	60,000	1	60,000
Total	491,000				217,500		273,500

3.

Particulars	B300	T500	Total
Sales revenue	1,400,000	700,000	2,100,000
Costs
Direct material	436,300	251,700	688,000
Direct labor	200,000	104,000	304,000
Overhead	400,000	208,000	608,000
Total cost	1,036,300	563,700	1,600,000
Product margin	363,700	136,300	500,000
Units	70,000	17,500
Product margin per unit	5.20	7.79

Particulars	B300	T500	Total
Sales revenue	1,400,000	700,000	2,100,000
Costs
Direct material	436,300	251,700	688,000
Direct labor	200,000	104,000	304,000
Advertising	50,000	100,000	150,000
Overhead
Machining	126,000	87,500	213,500
Setups	31,500	126,000	157,500
Product sustaining	60,000	60,000	120,000
Total cost	903,800	729,200	1,633,000
Product margin	496,200	-29,200	467,000
Units	70,000	17,500
Product margin per unit	7.09	-1.67

Activity	Cost (A)	Cost driver (B)	Cost per cost driver ((C) = (A)/(B))
Machining	213,500	152,500	1.40
Setups	157,500	375	420
Product sustaining	120,000	2	60,000
Total	491,000

Traditional cost system:

Particulars	B 300		T 500		Total
	Amount ($)	Percent	Amount ($)	Percent
Direct material	436,300	63.42%	251,700	36.58%	688,000
Direct labor	200,000	65.79%	104,000	34.21%	304,000
Overhead	400,000	65.79%	208,000	34.21%	608,000
Total cost assigned to products	1,036,300		563,700		1,600,000
Selling and administrative expense					550,000
Total cost					2,150,000

Activity-based costing system:

Particulars	B 300		T 500		Total
	Amount ($)	Percent	Amount ($)	Percent
Direct costs
Direct material	436,300	63.42%	251,700	36.58%	688,000
Direct labor	200,000	65.79%	104,000	34.21%	304,000
Advertising	50,000	33.33%	100,000	66.67%	150,000
Indirect costs
Machining	126,000	59.02%	87,500	40.98%	213,500
Setups	31,500	20.00%	126,000	80.00%	157,500
Product sustaining	60,000	50.00%	60,000	50.00%	120,000
Total cost assigned to products	903,800		729,200		1,633,000
Costs not assigned to products
Selling and administrative expense					400,000
Other					117,000
Total cost					2,150,000