Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 2.14 points 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: Skipped $ Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,718,000 1,244,998 473,002 620,000 (146,998) eBook $ Print Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,800 units of T500 at a price of $40 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: References B300 $ 400,900 $ 120,800 T500 $ 162,700 $ 42,500 $ Direct materials Direct labor Manufacturing overhead Cost of goods sold Total 563,600 163,300 518,098 1,244,998 $ The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 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 B300 T500 90,000 62,700 Total 152,700 Manufacturing Overhead $ 204,618 153,080 100,000 60,400 $ 518,098 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 280 NA 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 B200 and Tsoo under the company's traditional costing system. (Rou 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 T 500 Total Product margin 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 T 500 Total Product margin Chapter 7 Homework Assignment i Saved 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.) 2.14 points B300 T500 Total % of % of Skipped Amount Amount Amount Traditional Cost System % eBook Total cost assigned to products Print Total cost References Total B300 % of Total Amount T500 % of Total Amount Amount Amount Amount Activity-Based Costing System Direct costs: Indirect costs: $ 0 $ 0 Total cost assigned to products Costs not assigned to products: Total cost
