Question

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 1,712,000 1,267,830 444,170 570,000 (125,830) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 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 plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below. B300 $ 480,100 $ 120,300 T500 $ 162,500 $ 42,200 $ Direct materials Direct labor Manufacturing overhead Cost of goods sold Total 562,660 162,50 542.7330 1,267,830 $

Answer 1

1)	predetermined overhead rate
	total estimated manufacturing overhead/total estimated direct labor dollars
	542730/162500
	3.339877
	product margin using traditional appraoch
					B300	T500	total
	sales				1204000	508000	1712000
	less:Expenses
	direct materials				400100	162500	562600
	direct labor				120300	42200	162500
	manufacturing OH applied @3.34				401787	140943	542730
	total manufacturing cost				922187	345643	1267830
	product margin				281813	162357	444170	answer
2)	ABC activity based
	Activity rates
					(a)	(b)	c=a/b
	Activity cost pools				total cost	total	Activity rate
						activity
	machining				213,780	152,700	1.4	per machine hour
	Setups				166,950	371	450	per setup hour
	product sustaining				101,800	2	50900	per product
	product margin under ABC accounting
					B300	T500	total
	sales				1204000	508000	1712000
	less:Expenses
	direct materials				400100	162500	562600
	direct labor				120300	42200	162500
	Advertising expense				54,000	106,000	160000
	manufacturing overhead assigned
	machining				126280	87500	213780
	Setups				31950	135000	166950
	product sustaining				50900	50900	101800
	total cost				783,530	584,100	1367630
	product margin				420470	-76100	344370
	Traditional cost system			B        300		T -500
3)					% of total		% of total	Total
				amount	amount	amount	amount	amount
	Traditional cost system
	Direct materials			400100	71.1%	162500	28.9%	562600
	direct labor			120300	74.0%	42200	26.0%	162500
	manufacturing overhead			401787	74.0%	140943	26.0%	542730
	total cost assigned to products							1267830
	selling & administrative cost							570,000
	total cost.							1837830
				B        300		T -500
					% of total		% of total	Total
				amount	amount	amount	amount	amount
	ABC based costing system
	Direct costs
	direct materials			400100	71.1%	162500	28.9%	562600
	direct labor			120300	74.0%	42200	26.0%	162500
	Advertising expense			54,000	33.8%	106,000	66.3%	160000
	Indirect costs:
	machining			126280	59.1%	87500	40.9%	213780
	Setups			31950	19.1%	135000	80.9%	166950
	product sustaining			50900	50.0%	50900	50.0%	101800
	total cost assigned to products			783530		584100		1367630
	cost not assigned to products
	Selling & administrative expense							410,000
	other							60,200
	total cost.							1837830