Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins (L07-1, L07-3, LO7-4, L07-5) Hi-Tek Manufacturing, Inc., makes two types of industrial component parts--the 1300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Inc, Incone Statement Sales $ 1,641,100 Cost of goods sold 1,224,214 Gross margin 416,886 Selling and administrative expenses 550.000 Net operating loss $ (133,114) Hi-Tek produced and sold 60,100 units of B300 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 dollors as the allocation base. Additional Information relating to the company's two product lines is shown below 0300 T500 Total Direct materials $ 400,800 $ 162,100 $ 56), 100 Direct labor $ 120,000 $42.700 162,700 Manufacturing overhead 498,414 Cost of goods sold $ 1,224,214 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 $108,000 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 $ 209,984 135,710 101,800 60,000 $ 498,414 B300 90,200 71 1 NA Activity T500 Total 62,000 152,200 260 331 1 2 NA 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 Reque 1 Required 2 > 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 $ 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 Total % of % of Amount Amount Amount Traditional Cost System % % % % % $ Total cost ansigned to products $ 0 $ 0 $ 0 Total cost 8300 T500 Total Total cost $ B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs % % % % Indirect costs: % % 9 $ 0 $ 0 0 Total cost assigned to products Costs not assigned to products: Total cost $ 0
