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 S 1,644,88e 1,237,890 Sales Cost of goods sold Gross margin Selling and adninistrative expenses 486,918 бее, еее Net operating loss (193,e90) Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12700 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 Total T50e 488, 100 162,700 $ 120,4ee 42,see взве Direct materials Direct labor 562,88e 162,980 512,190 $1,237,890 Manufacturing overhead Cost of goods sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57000 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 organizaation-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as shown below: Activity TSee 62,180 Manufacturing Overhead $ 213,228 137,17e 181, 80e 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 B308 Total 152, 300 9е,200 79 1 NA 248 1 NA 319 2 60,eee NA 512,19e Requlred: 1. Compute the product margins for the B300 and T5000 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 T500 under the activity-based costing system. (Negative product mar be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product 430 S 1 S 431 margin B300 T500 Total % of % of Amount Amount Amount Traditional Cost System В85 % % % Total cost assigned to products 0 0 Total cost B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs % % % % 9% Indirect costs % % % x% % Total cost assigned to products 0 0 Costs not assigned to products:

Answer 1

2.

	B 300	T 500	Total
Product Margin	$ 360,850	$ ( 58,940)	$ 301,910

Computations :

	B 300	T 500	Total
Sales	$ 1,149,500	$ 495,300	$ 1,644,800
Cost of Goods Sold
Direct Materials	400,100	162,700	562,800
Direct Labor	120,400	42,500	162,900
Machining	126,280	86,940	213,220
Setup	33,970	103,200	137,170
Product Sustaining	50,900	50,900	101,800
Advertising	57,000	108,000	165,000
Cost of Goods Sold	788,650	554,240	1,342,890
Product Margin	$ 360,850	$ ( 58,940)	$ 301,910

3.

	B 300			T 500			Total
	Amount	% of Total Amount		Amount	% of Total Amount
Traditional Cost System
Direct Materials	$ 400,100	71	%	$ 162,700	29	%	$ 562,800
Direct Labor	120,400	74	%	42,500	26	%	162,900
Manufacturing Overhead	378,562	74	%	133,628	26	%	512,190
Total Cost Assigned to Products	899,062	73	%	338,828	27	%	1,237,890
Selling and Administrative Expenses							600,000
Total Cost							1,837,890
Activity Based Costing System
Direct Costs
Direct Materials	$400,100	71	%	$162,700	29	%	$ 562,800
Direct Labor	120,400	74	%	42,500	26	%	162,900
Total Direct Costs	520,500	72	%	205,200	28	%	725,700
Indirect Costs
Machining	126,280	59	%	86,940	41	%	213,220
Setup	33,970	25	%	103,200	75	%	137,170
Product Sustaining	50,900	50	%	50,900	50	%	101,800
Advertising	57,000	35	%	108,000	65	%	165,000
Total Costs Assigned To Products	788,650	59	%	554,240	41	%	1,342,890
Costs not assigned to products
Organization Sustaining Costs							495,000
Total Cost							$1,837,890