Problem 7-16 Comparing Traditional and Activity-Based Product Margins (L07-1, LO7-3, L07-4, L07-5) 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 $ 1,657,500 1,215,468 442,032 620, mee $ (177,968) Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit. The company's traditional cost system allocates manufacturing overhead to products using a plantvide overhead rate and direct labor dollars as the allocation base. Additional Information relating to the company's two product lines is shown below: B300 $ 401, eee $ 120,800 Direct materials Direct labor Manufacturing overhead Cost of goods sold T500 Total $ 162,500 $ 563, 5ee $ 42,000 162,800 489,168 $ 1,215,468 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 $103,000 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 $ 210, 588 118,080 100, 200 60, 30e $ 489,168 B380 90,400 78 1 NA Activity T500 62,200 210 1 NA Total 152,6ee 288 2 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 7500 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 $ 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 96 %6 Traditional Cost System Direct materials Direct labor Manufacturing overhead Total cost assigned to products Selling and administrative Total cost $ $ 0 $ $ B300 T500 Total % of %% of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct materials 96 96 96 Direct labor Advertising expense Indirect costs: 96 % Machining 9% % 96 % 96 S 0 $ Setups Product sustaining Total cost assigned to products Costs not assigned to products: Selling and administrative Product sustaining Total cost $ 0
