Hi-Tek Manufacturing, Inc., makes two types of industrialcomponent partsâthe B300 and the T500. An absorption costing incomestatement for the most recent period is shown: Hi-Tek ManufacturingInc. Income Statement Sales $ 1,710,000 Cost of goods sold1,235,260 Gross margin 474,740 Selling and administrative expenses620,000 Net operating loss $ (145,260 ) Hi-Tek produced and sold60,100 units of B300 at a price of $20 per unit and 12,700 units ofT500 at a price of $40 per unit. The companyâs traditional costsystem allocates manufacturing overhead to products using aplantwide overhead rate and direct labor dollars as the allocationbase. Additional information relating to the companyâs two productlines is shown below: B300 T500 Total Direct materials $ 400,500 $163,000 $ 563,500 Direct labor $ 120,300 $ 42,600 162,900Manufacturing overhead 508,860 Cost of goods sold $ 1,235,260 Thecompany has created an activity-based costing system to evaluatethe profitability of its products. Hi-Tekâs ABC implementation teamconcluded that $55,000 and $105,000 of the companyâs advertisingexpenses could be directly traced to B300 and T500, respectively.The remainder of the selling and administrative expenses wasorganization-sustaining in nature. The ABC team also distributedthe companyâs manufacturing overhead to four activities as shownbelow: Manufacturing Overhead Activity Activity Cost Pool (andActivity Measure) B300 T500 Total Machining (machine-hours) $198,770 90,800 62,100 152,900 Setups (setup hours) 147,490 73 270343 Product-sustaining (number of products) 101,600 1 1 2 Other(organization-sustaining costs) 61,000 NA NA NA Total manufacturingoverhead cost $ 508,860 Required: 1. Compute the product marginsfor the B300 and T500 under the companyâs traditional costingsystem. 2. Compute the product margins for B300 and T500 under theactivity-based costing system. 3. Prepare a quantitative comparisonof the traditional and activity-based cost assignments.
Hi-Tek Manufacturing, Inc., makes two types of industrialcomponent partsâthe B300 and the T500. An absorption costing incomestatement for the most recent period is shown: Hi-Tek ManufacturingInc. Income Statement Sales $ 1,710,000 Cost of goods sold1,235,260 Gross margin 474,740 Selling and administrative expenses620,000 Net operating loss $ (145,260 ) Hi-Tek produced and sold60,100 units of B300 at a price of $20 per unit and 12,700 units ofT500 at a price of $40 per unit. The companyâs traditional costsystem allocates manufacturing overhead to products using aplantwide overhead rate and direct labor dollars as the allocationbase. Additional information relating to the companyâs two productlines is shown below: B300 T500 Total Direct materials $ 400,500 $163,000 $ 563,500 Direct labor $ 120,300 $ 42,600 162,900Manufacturing overhead 508,860 Cost of goods sold $ 1,235,260 Thecompany has created an activity-based costing system to evaluatethe profitability of its products. Hi-Tekâs ABC implementation teamconcluded that $55,000 and $105,000 of the companyâs advertisingexpenses could be directly traced to B300 and T500, respectively.The remainder of the selling and administrative expenses wasorganization-sustaining in nature. The ABC team also distributedthe companyâs manufacturing overhead to four activities as shownbelow: Manufacturing Overhead Activity Activity Cost Pool (andActivity Measure) B300 T500 Total Machining (machine-hours) $198,770 90,800 62,100 152,900 Setups (setup hours) 147,490 73 270343 Product-sustaining (number of products) 101,600 1 1 2 Other(organization-sustaining costs) 61,000 NA NA NA Total manufacturingoverhead cost $ 508,860 Required: 1. Compute the product marginsfor the B300 and T500 under the companyâs traditional costingsystem. 2. Compute the product margins for B300 and T500 under theactivity-based costing system. 3. Prepare a quantitative comparisonof the traditional and activity-based cost assignments.
