Compute the product margins for the B300 and T500 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.
Compute the product margins for the B300 and T500 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Compute the product margins for the B300 and T500 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.
Transcribed Image Text: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
$ 1,657,500
1,224,620
432,880
620,000
Net operating loss
$ (187,120)
Hi-Tek produced and sold 60,500 units of B300 at a price of $19 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:
в300
T500
Total
$ 400,600
$ 120,400
Direct materials
$ 162,700
$ 42,000
563,300
162,400
498,920
Direct labor
Manufacturing overhead
Cost of goods sold
$ 1,224,620
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation
team concluded that $55,000 and $101,000 of the company's advertising expenses could be directly traced to B300 and T500,
respectively. Thb 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
Overhead
B300
T500
Total
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Product-sustaining (number of products)
Other (organization-sustaining costs)
90,100 62,300
76
152,400
306
$ 205,740
131,580
101,600
60,000
230
1.
NA
NA
NA
Total manufacturing overhead cost
$ 498,920
Required:
%24
Transcribed Image Text:places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)
B300
T500
Total
% of
% of
Amount
Amount
Amount
Traditional Cost System
Total cost assigned to products
2$
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
24
0.
0.
Costs not assigned to products:
%24
%24
%24
%24
%%一%
%24
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