Question
Precision Manufacturing Inc. (PMI) makes two types of industrial component partsthe EX300 and the TX500. An absorption costing income statement for the most recent period
Precision Manufacturing Inc. (PMI) makes two types of industrial component partsthe EX300 and the TX500. An absorption costing income statement for the most recent period is shown below: |
Precision Manufacturing Inc. Income Statement | ||
Sales | $ | 1,633,300 |
Cost of goods sold | 1,225,370 | |
Gross margin | 407,930 | |
Selling and administrative expenses | 550,000 | |
Net operating loss | $ | (142,070) |
PMI produced and sold 60,100 units of EX300 at a price of $19 per unit and 12,600 units of TX500 at a price of $39 per unit. The companys 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 companys two product lines is shown below: |
EX300 | TX500 | Total | ||||
Direct materials | $ | 400,600 | $ | 162,300 | $ | 562,900 |
Direct labor | $ | 120,600 | $ | 42,400 | 163,000 | |
Manufacturing overhead | 499,470 | |||||
Cost of goods sold | $ | 1,225,370 | ||||
The company has created an activity-based costing system to evaluate the profitability of its products. PMIs ABC implementation team concluded that $59,000 and $106,000 of the companys advertising expenses could be directly traced to EX300 and TX500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the companys manufacturing overhead to four activities as shown below: |
Manufacturing | Activity | ||||
Activity Cost Pool (and Activity Measure) | Overhead | EX300 | TX500 | Total | |
Machining (machine-hours) | $ | 209,610 | 90,100 | 62,900 | 153,000 |
Setups (setup hours) | 127,160 | 79 | 210 | 289 | |
Product-sustaining (number of products) | 101,800 | 1 | 1 | 2 | |
Other (organization-sustaining costs) | 60,900 | NA | NA | NA | |
Total manufacturing overhead cost | $ | 499,470 | |||
Required |
1. | Compute the product margins for the EX300 and TX500 under the companys traditional costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. Omit the "$" sign in your response.) |
EX300 | TX500 | Total | |
Product margin | $ | $ | $ |
2. | Compute the product margins for EX300 and TX500 under the activity-based costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. Omit the "$" sign in your response.) |
EX300 | TX500 | Total | |
Product margin | $ | $ | $ |
3. | Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your percentage answers to one decimal place and other answers to the nearest dollar amount. Omit the "$" & "%" signs in your response.) |
EX300 | TX500 | Total | |||
Amount | % of Total Amount | Amount | % of Total Amount | Amount | |
Traditional Cost System | |||||
(Click to select)Direct materialsOtherSelling and administrativeMachiningAdvertising expenseProduct sustaining | $ | % | $ | % | $ |
(Click to select)Advertising expenseDirect laborSelling and administrativeMachiningOtherProduct sustaining | % | % | |||
(Click to select)Advertising expenseMachiningOtherProduct sustainingManufacturing overheadSelling and administrative | % | % | |||
Total cost assigned to products | $ | $ | |||
(Click to select)Direct laborMachiningManufacturing overheadSelling and administrativeOtherDirect materials | |||||
Total cost | $ | ||||
Activity-Based Costing System | |||||
Direct costs: | |||||
(Click to select)OtherSelling and administrativeDirect materialsSetupsProduct sustainingManufacturing overhead | $ | % | $ | % | $ |
(Click to select)Direct laborSetupsMachiningManufacturing overheadSelling and administrativeOther | % | % | |||
(Click to select)Advertising expenseManufacturing overheadMachiningProduct sustainingOtherSetups | % | % | |||
Indirect costs: | |||||
(Click to select)MachiningDirect laborManufacturing overheadDirect materialsSelling and administrativeAdvertising expense | % | % | |||
(Click to select)Manufacturing overheadSelling and administrativeSetupsDirect laborOtherDirect materials | % | % | |||
(Click to select)Advertising expenseProduct sustainingManufacturing overheadDirect materialsDirect laborOther | % | % | |||
Total cost assigned to products | $ | $ | |||
Costs not assigned to products: | |||||
(Click to select)Advertising expenseProduct sustainingMachiningSetupsSelling and administrativeManufacturing overhead | |||||
(Click to select)Manufacturing overheadSetupsDirect materialsDirect laborOtherProduct sustaining | |||||
Total cost | $ | ||||
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