Question

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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 N 1,716,000 1,212,398 503,602 620,000 (116,398) Hi-Tek produced and sold 60,200 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. B380 $ 400,500 $ 120,100 T560 $ 162,400 $ 42,400 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,900 162,500 486,998 $ 1,212,398

Answer 1

Product margin traditional costing

G H I Traditional costing Total Sales (a) B300 T500 60200*20 12800*40 1204000 512000 1716000 Less: Direct Material Direct Labor Manufacturing Overhead cost (18/17*G7) Total Cost (b) 400500 162400 12010042400 359929 127069 520600 204800 562900 162500 486998 486998 Product Margin (a-b) 683400 307200 1229002

Product margin ABC

D Activity based costing B300 T500 Total Sales (a) 60200*20 12800*40 1204000 512000 1716000 Less: Direct Material 400500 162400 562900 Direct Labor 12010042400 162500 Manufacturing overhead Machining 121136 83482 204618 Setups 33180 88200 121380 Product sustaining 50200 50200 100400 Total Cost (b) 725116 426682 426398 Product Margin (a-b) 478884 85318 1289602

Quantative comparison traditional

Comparative Statement- Traditional Son B300 Amount % 400500 120100 359929 880529 Direct Material Direct Labor Manufacturing Overhead cost Total cost assigned to product Selling and administrative expense Total cost T500 Amount % 71.1 162400 73. 9 42400 29.7 127069 331869 Total Amount 28.9 26.1 10.5 562900 162500 486998 1212398 620000 1832398

Quantitative comparison ABC

Comparative Statement- ABC B300 T500 Amount Total Amount 28.9 26.1 Amount 71.1 73.9 400500 120100 162400 42400 562900 162500 Direct Material Direct Labor Indirect Cost Machining Setups Product sustaining Advertising expense 121136 33180 50200 52000 59.2 27.3 50.0 34.0 83482 88200 50200 101000 40.8 72.7 50.0 66.0 204618 121380 100400 153000 777116 527682 1304798 Total Cost assigned to the product Costs not assigned to the product Advertising expense (620000-52000-101000) other Total Cost 467000 60600 1832398