Problem 7-16 Comparing Traditional and Activity-Based Product Margins (L07-1, LO7-3, LO7-4, LO7-5) Hi-Tek Manufacturing, Inc., makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown: ed Hi-Tek Manufacturing Inc. Income Statement Sales $1,691,500 Cost of goods sold 1,219, 465 Gross margin 472,035 Selling and administrative 620,000 expenses Net operating loss $ (147,965) -k nce Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,500 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: Direct materials Direct labor Manufacturing overhead Cost of goods B300 T500 Total $400, 400 $ 162,400 $ 562,800 $120, 200 $ 42,700 162,900 493,765 $1,219,465 sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $59,000 and $109,000 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 Manufacturing Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 204,155 90,500 63,000 153,500 Setups (setup hours) 127,710 77 220 297 Product-sustaining (number of 101,600 1 2 products) Other (organization- 60,300 NA NA NA sustaining costs) Total manufacturing overhead $493,765 cost 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 Required 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 $ 0 Required Required Required 1 2 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 assigned to products $ 0 $ 0 $ 0 Total cost $ 0 T500 Total B300 % of Total Amount Amount % of Total Amount Amount Amount Activity-Based Costing System Direct costs: % % % % % % Indirect costs: % % % % % % $ 0 $ 0 0 Total cost assigned to products Costs not assigned to products: Total cost $ 0
