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 1,710,000 1,254,560 455,440 630,000 (174,560) $ Hi-Tek produced and sold 60,100 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 $ 400,300 $ 120,600 1500 $ 162,500 $ 42,000 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,800 162,600 529,160 $ 1,254,560

Answer 1

Solution 1:

Predetermined overhead rate = $529160/ $162600 = $3.25 per direct labor dollar

N P S T 3 4 5 5 6 7 Computation of Product Margin - Traditional Costing System Total Particulars ВЗ00 T500 $1,710,000 $562,800 $162,600 Sales (B300 60,100*$20, T500 - 12700*$40) Direct material Direct labor $1,202,000 $400,300 $120,600 $508,000 $162,500 $42,000 9 10 11 12 Manufacturing overhead ($3.25 * Direct labor) $391,950 $136,500 $528,450 13 $289,150 $167,000 $456,150 Product Margin 14 15 16 17 18 19 20 Sheet15 (10) Sheet120 (2) Sheet208 (2) Sheet12 (2) Sheet326 Sheet328 Sheet331

Solution 2:

W Z АA АВ АC AD AE 5 6 7 Determination of activity rate for each activity & allocation of overhead Estimated Usage of Activity Base 8 B300 T500 Activity Activity Rate Activity Base Overhead Cost Usage Allocated Costs Usage Allocated Costs $124,396.00 62200 $32,250.00 9 $209,610.00 Machine hours $156,950.00 Setup hours 153000 $85,214.00 $124,700.00 Machining Setups $1.37 10 90800 365 $430.00 75 290 11 12 Product sustaining $101,800.00 Number of products $60,800.00 No allocation $529,160.00 $50,900.00 $50,900.00 $50,900.00 1 1 Other Total 13 $207,546.00 $260,814.00 14 15 16 17 18 19 Computation of Product Margin - Activity based Costing System T500 20 Particulars Total В300 Sales (B300 60,100*$20, T500 12700*$40) Direct material Direct labor $1,202,000 $400,300 $120,600 $508,000 $1,710,000 $562,800 $162,600 21 22 $162,500 $42,000 23 24 Allocated Manufacturing overhead Advertising Expense $207,546.00 $57,000.00 $468,360 $109,000.00 $166,000.00 $260,814.00 25 26 $416,554.00 Product Margin -$66,314.00 $350,240. 00 27 28 Sheet15 (10) 3) Sheet120 (2) Sheet208 (2) Sheet12 (2) Sheet326 Sheet328 Sheet331

Solution 3:

АЕ AF AG АН Al AJ AK AL АМ AN АО AP AQ AR AS 7 Quantity comparison oftraditional cost assignment 8 Взоо Total T500 Particulars 9 Amount Amount % oftotal Amount % oftotal Amount Amount 28.9% 25.8% 10 $400,300 $120,600 71.1 %| 74.2% $162,500 $562,800 $162,600 Direct Material Cost Direct Labor Cost $42,000 11 12 Manufacturing Overhead cost Total cost assigned to products Total cost not assigned to product: Selling and adminstrative Expenses 25.8% $391,950 $136,500 $528.450 74.2% $341,000 $1,253,850 $912,850 13 14 $630,000.00 $1,883,850 15 16 Total Cost 17 18 19 20 Quantity comparison of Activity Based cost assignment 21 22 ВВОО T500 Total Particulars 23 % oftotal Amount Amount Amount % oftotal Amount Amount Direct Cost: 24 25 Material Cost Labor Cost Advertising Expense $400,300 $120,600 S57,000.00 $162,500 28.9% 25.8% 65.7% $562,800 71.1% $162,600 $166,000 26 74.2% $42,000 $109,000.00 27 34.3% Indirect Cost: 28 40.7% 29 $124,396 $85,214 $209,610 59.3% Machining 20.5 % 30 $32,250 $124,700 79.5% $156,950 Setups 50.0% 50.0% 31 $50,900 $50,900 $101,800 Product sustaining 32 Total Cost Assignmed to Products 33 $785,446 $574,314 $1,359,760 34 Cost not assigned to products: Manufacturing Selling and administrative (630000-57000-109000) 35 $60,800 $464,000 $1.884.560 36 37 38 Total Cost Sheet15 (10) Sheet12 (2) 3) Sheet120 (2) Sheet208 (2) Sheet326 Sheet328 Sheet331 Sh

s Tu Computation of Product Margin - Traditional Costing System Particulars B300 T500 Total 10 Sales (B300 - 60,100*$20, T500 - 12700*$40) Direct material Direct labor $1,202,000 $400,300 $120,600 $508,000 $ 162,500 $42,000 $1,710,000 $562,800 $ 162,600 11 12 Manufacturing overhead ($3.25 * Direct labor) $391,950 $136,500 $528,450 13 14 Product Margin $289,150 $167,000 $456,150 15 1 > 18 19 20 3) Sheet15 (10) Sheet120 (2) Sheet326 Sheet12 (2) Sheet328 Sheet208 (2) Sheet331 SH

I Z AA AB AC AD E Determination of activity rate for each activity & allocation of overhead B300 T500 Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Machining Setups $209,610.00 Machine hours $156,950.00 Setup hours 153000 3651 Usage Allocated Costs Usage Allocated Costs $1.37 90800 $124,396.00 62200 $85,214.00 $430.00 75 $32,250.00 290 $124,700.00 $50,900.00 $50,900.00 $50,900.00 Product sustaining Other Total $101,800.00 Number of products $60,800.00 No allocation $529,160.00 $207,546.00 $260,814.00 15 16 17 18 19 20 Computation of Product Margin - Activity based Costing System Particulars B300 T500 Sales (B300 - 60,100*$20, T500 - 12700*$40) $1,202,000 $508,000 Direct material $400,300 $162,500 Direct labor $120,600 $42,000 22 Total $1,710,000 $562,800 $162,600 24 Allocated Manufacturing overhead Advertising Expense $207,546.00 $57,000.00 $260,814.00 $468,360 $109,000.00 $166,000.00 25 26 27 Product Margin $416,554.00 $66,314.00 $350,240.00 28 3) Sheet15 (10) Sheet120 (2) Sheet326 Sheet12 (2) Sheet328 Sheet208 (2) Sheet331 SH

AF AG AH AJ AL AMAN AO AP AQ AR AI Quantity comparison of traditional cost assignment B300 1500 Total Particulars Direct Material Cost Direct Labor Cost Amount $400,300 $120,600 % of total Amount 71.1% 74.2% Amount $162,500 $42,000 % of total Amount 28.9% 25.8% Amount $562,800 $162,600 74.2% 25.8% $391,950 $912,850 $136,500 $341,000 $528,450 $1,253,850 Manufacturing Overhead cost Total cost assigned to products Total cost not assigned to product: Selling and adminstrative Expenses Total Cost $630,000.00 $1,883,850 Particulars Quantity comparison of Activity Based cost assignment B300 Amount % of total Amount Amount 7500 % of total Amount Total Amount Direct Cost: Material Cost Labor Cost Advertising Expense $400,300 $120,600 $57,000.00 71.1% 74.2% 34.3% $162,500 $42,000 $109,000.00 28.9% 25.8% 65.7% $562,800 $162,600 $166,000 Indirect Cost: $124,396 59.3% $85,214 40.7% $209,610 Machining $32,250 20.5% $124,700 79.5% $156,950 Setups Product sustaining $50,900 50.0% $50,900 50.0% $101,800 $785,446 $574,314 $1,359,760 Total Cost Assigned to Products Cost not assigned to products: Manufacturing Selling and administrative (630000-57000-109000) Total Cost $60,800 $464,000 $1,884,560 37 38 3) Sheet15 (10) Sheet120 (2) Sheet326 Sheet12 (2) Sheet328 Sheet208 (2) Sheet331 SH