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 below:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,751,700
Cost of goods sold		1,223,464
Gross margin		528,236
Selling and administrative expenses		560,000
Net operating loss	$	(31,764)

Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,500 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		T500		Total
Direct materials	$	401,000	$	162,400	$	563,400
Direct labor	$	120,900	$	42,400		163,300
Manufacturing overhead						496,764
Cost of goods sold					$	1,223,464

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $58,000 and $107,000 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:

Manufacturing

Activity

Activity Cost Pool (and Activity Measure)

Overhead

B300

T500

Total

Machining (machine-hours)

$

209,884

90,400

62,800

153,200

Setups (setup hours)

125,580

79

220

299

Product-sustaining (number of products)

100,800

1

1

2

Other (organization-sustaining costs)

60,500

NA

NA

NA

Total manufacturing overhead cost

$

496,764

Required

1.

Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)

	B300	T500	Total
Product margin

2.

Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

	B300	T500	Total
Product margin

3.)

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)

	B300		T500		Total
		% of		% of
	Amount	Total Amount	Amount	Total Amount	Amount
Traditional Cost System
Total cost assigned to products
Total cost

	B300		T500		Total
		% of		% of
	Amount	Total Amount	Amount	Total Amount	Amount
Activity-Based Costing System
Direct costs:
Indirect costs:
Total cost assigned to products
Costs not assigned to products:
Total cost