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 1,697,400 1,214,028 483,372 600,000 (116,628) $ Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,600 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: B300 $ 400,600 $ 120,300 T500 $ 163,000 $ 42,300 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,600 162,600 487,828 $ 1,214,028 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:

Answer 1

solution: 1) product margin under traditional system sales B300 1,206,000 T500 491,400 T otal 1,697,400 400,600 120,300 163,000 42,300 563,600 162,600 Direct materials Direct labor Manufacturing overhead applied (direct labor cost*3.00017)** total manufacturing cost 360,921 126,907 487,828 881,821 332,207 1,214,028 Product margin 324,179 159,193 483,372 3.00017 **overhead rate 487828/162600 2) product margin under ABC sales B300 1,206,000 T500 491,400 Total 1,697,400 *working Machining * Setups Product-sustaining B300 T 500 118,162 82,006 31,160 94,300 51000*1 51000*1 Direct materials Direct labor advertising exp Machining * Setups * Product-sustaining * total manufacturing cost 400,600 163,000 563,600 120,300 42,300 162,600 59,000 109,000 168,000 118,162 82,006 200,168 31,160 94,300 125,460 51,000 51,000 102,000 780,222 541,6061,321,828 Calculation of activity rate Manufacturing Activity activity rate Activity Cost Pool (and Activity Measure) Overhead | Total 1 Machining (machine-hours) 200168 152800 1.31 Setups (setup hours) 125460 306 410 | Product-sustaining (number of products) 102000 2 51,000 Product margin 425,778 - 50,206 375,572 - Sheet758 Sheet759 Sheet760 Sheet 761 Sheet762 Sheet763 Sheet 764 Sheet765 Sheet 766 ] ENG III TUUS 09:37 27/02/2020

3) comparision B300 T500 amount amount Traditional cost system Direct materials Direct labor Manufacturing overhead applied total cost assigned to product selling and administrative exp total cost 400,600 120,300 360,921 881,821 % of total amount 71.1% 74.0% 74.0% 163,000 42,300 126,907 332,207 % of total amount 28.9% 26.0% 26.0% B300 T500 amount % of total amount amount % of total amount 400,600 120,300 59,000 71.1% 74.0% 35.1% 163,000 42,300 109,000 28.9% 26.0% 64.9% Activity based costing direct cost Direct materials Direct labor advertising expense Indirect cost Machining * Setups * Product-sustaining * total cost assigned to product cost not assigned to product selling and administrative exp (600000-168000) Other (organization-sustaining costs) total cost 118,162 31,160 51,000 780,222 59.0% 24.8% 50.0% 82,006 94,300 51,000 541,606 41.0% 75.2% 50.0%