Problem 7-16 Comparing Traditional and Activity-Based Product Margins (L07-1, LO7-3, L07-4, LO7-5) 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: $ Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,697,300 1,247,560 449,740 590,000 (140.260) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 dollars as the allocation base. Additional information relating to the company's two product lines is shown below: 8300 $ 400,500 $ 120.900 TSee $ 162,200 $ 42,800 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,700 163,700 521,160 $ 1,247,560 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $101,000 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: B300 90,500 77 Manufacturing Overhead $206,280 152.682 101,800 60,400 $ 521.160 Activity T500 62,300 270 152.869 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 347 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. Complete this question by entering your answers in the tabs below. 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 $ 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 Total of % of Amount Amount Amount $ % $ $ 400,500 120,900 162,200 42.800 Traditional Cost System Direct materials Direct labor Manufacturing overhead Total cost assigned to products Selling and administrative Total cost % 96 1961 19 562,700 163,700 521.160 1,247,560 590,000 1.837 560 $ 521,400 $ 205,000 $ $ B300 T500 Total Amount Total Amount Amount Total Amount Amount i % 57.0007 % 101.000 158.000 Activity-Based Costing System Direct costs: Direct materials Direct labor Advertising expense Indirect costs: Machining Setups Product sustaining Total cost assigned to products Costs not assigned to products: Other Selling and administrative Total cost $ 57,000 $ 101,000 158,000 60.400 432,000 650 400 $
