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Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the 8300 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 Direct materials Direct labor $1,652,000 1,241,100 Hi-Tek produced and sold 60,000 units of 8300 at a price of $19 per unit and 12,800 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: Manufacturing overhead Cost of goods sold 410,900 550,000 (139, 100) 8300 T500 Total $ 400,700 $162,200 $ 562,900 $ 120,700 $ 42,300 163,000 515,200 $1,241,100 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $54,000 and $109,000 of the company's advertising expenses could be directly traced to 8300 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: 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 Manufacturing, Overhead $ 198,640 155,660 100,800 60,100 $ 515,200 Activity 8300 T500 Total 90,200 62,600 152,800 290 1 NA 72 1 NA 362 2 NA

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the 8300 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 Direct materials Direct labor $1,652,000 1,241,100 Hi-Tek produced and sold 60,000 units of 8300 at a price of $19 per unit and 12,800 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: Manufacturing overhead Cost of goods sold 410,900 550,000 (139, 100) 8300 T500 Total $ 400,700 $162,200 $ 562,900 $ 120,700 $ 42,300 163,000 515,200 $1,241,100 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $54,000 and $109,000 of the company's advertising expenses could be directly traced to 8300 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: 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 Manufacturing, Overhead $ 198,640 155,660 100,800 60,100 $ 515,200 Activity 8300 T500 Total 90,200 62,600 152,800 290 1 NA 72 1 NA 362 2 NA

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required: Prepare a quantitative comparison of the traditional and activity-based cost assignments.

**Hi-Tek Manufacturing Inc.: Industrial Component Production Analysis and Costing** **Income Statement for Hi-Tek Manufacturing Inc. (Most Recent Period):** |Description|Amount| |---|---| |**Sales**|$1,652,000| |**Cost of Goods Sold**|$1,241,200| |**Gross Margin**|$410,800| |**Selling and Administrative Expenses**|$550,000| |**Net Operating Loss**|$(139,100)| **Production and Pricing Details:** Hi-Tek produced and sold: - **60,000 units of B300** at a price of **$19 per unit** - **12,800 units of T500** at a price of **$40 per unit** **Allocation Information:** Hi-Tek traditionally allocates manufacturing overhead to products using a plant-wide overhead rate and direct labor dollars as the allocation base. **Additional Information for B300 and T500 Line:** | **Cost Component** | **B300** | **T500** | **Total** | | --- | --- | --- | --- | | **Direct Materials** | $400,700 | $162,200 | $562,900 | | **Direct Labor** | $120,700 | $42,300 | $163,000 | | **Manufacturing Overhead** | | | $515,200 | | **Cost of Goods Sold** | | | $1,241,100 | **Activity-Based Costing (ABC) System:** The ABC team at Hi-Tek has allocated overhead and advertising expenses to reflect the profitability of products more accurately. The analysis revealed: - **Advertising Costs Directly Traced to Products**: $54,000 for B300 and $109,000 for T500. - **Remaining Selling and Administrative Expenses**: Allocated as organization-sustaining. **Manufacturing Overhead Allocation by Activity:** | **Activity Cost Pool (and Activity Measure)** | **Overhead** | **B300** | **T500** | **Total** | | --- | --- | --- | --- | --- | | **Machining (machine-hours)** | $198,640 | 99,200 | 62,600 | 152,800 | | **Setups (setup hours)** | $155,660 | 72 | 290 | 362 | | **Product-sustaining (number of products)**
Transcribed Image Text:**Hi-Tek Manufacturing Inc.: Industrial Component Production Analysis and Costing** **Income Statement for Hi-Tek Manufacturing Inc. (Most Recent Period):** |Description|Amount| |---|---| |**Sales**|$1,652,000| |**Cost of Goods Sold**|$1,241,200| |**Gross Margin**|$410,800| |**Selling and Administrative Expenses**|$550,000| |**Net Operating Loss**|$(139,100)| **Production and Pricing Details:** Hi-Tek produced and sold: - **60,000 units of B300** at a price of **$19 per unit** - **12,800 units of T500** at a price of **$40 per unit** **Allocation Information:** Hi-Tek traditionally allocates manufacturing overhead to products using a plant-wide overhead rate and direct labor dollars as the allocation base. **Additional Information for B300 and T500 Line:** | **Cost Component** | **B300** | **T500** | **Total** | | --- | --- | --- | --- | | **Direct Materials** | $400,700 | $162,200 | $562,900 | | **Direct Labor** | $120,700 | $42,300 | $163,000 | | **Manufacturing Overhead** | | | $515,200 | | **Cost of Goods Sold** | | | $1,241,100 | **Activity-Based Costing (ABC) System:** The ABC team at Hi-Tek has allocated overhead and advertising expenses to reflect the profitability of products more accurately. The analysis revealed: - **Advertising Costs Directly Traced to Products**: $54,000 for B300 and $109,000 for T500. - **Remaining Selling and Administrative Expenses**: Allocated as organization-sustaining. **Manufacturing Overhead Allocation by Activity:** | **Activity Cost Pool (and Activity Measure)** | **Overhead** | **B300** | **T500** | **Total** | | --- | --- | --- | --- | --- | | **Machining (machine-hours)** | $198,640 | 99,200 | 62,600 | 152,800 | | **Setups (setup hours)** | $155,660 | 72 | 290 | 362 | | **Product-sustaining (number of products)**
### Comparative Analysis of Traditional vs. Activity-Based Costing **Objective:** Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Note: Round your intermediate calculations to 2 decimal places and “Percentage” answers to 1 decimal place and other answers to the nearest whole dollar amounts.) #### Traditional Cost System **B300** - **Direct Materials:** - Amount: $400,700 - % of Total Cost: 71.2% **T500** - **Direct Materials:** - Amount: $1,620,000 - % of Total Cost: 28.8% **Total** - **Direct Materials:** $2,020,700 - **Direct Labor:** $0 - **Total Cost Assigned to Products:** $2,020,700 - **Total Cost:** $2,020,700 #### Activity-Based Costing System **B300** - **Direct Costs:** - (Details to be filled in based on further calculations) - **Indirect Costs:** - (Details to be filled in based on further calculations) - **Total Cost Assigned to Products:** $0 **T500** - **Direct Costs:** - (Details to be filled in based on further calculations) - **Indirect Costs:** - (Details to be filled in based on further calculations) - **Total Cost Assigned to Products:** $0 #### Costs Not Assigned to Products **Total Cost:** $0 --- **Graphical Analysis:** The comparison involves detailed spreadsheets divided into Traditional Cost System and Activity-Based Costing System. - In the Traditional Cost System, direct materials for product B300 are $400,700 which accounts for 71.2% of the total cost, whereas for T500, it is $1,620,000 which represents 28.8% of the total cost. The combined total direct materials cost is $2,020,700. - The Activity-Based Costing System section is currently unfilled, indicating that specific indirect and direct costs need to be allocated to both products, B300 and T500. By working through the detailed steps and calculations, students will be able to complete the respective sections and draw parallels between the two costing methodologies, highlighting the distribution and percentage allocations of costs across different products.
Transcribed Image Text:### Comparative Analysis of Traditional vs. Activity-Based Costing **Objective:** Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Note: Round your intermediate calculations to 2 decimal places and “Percentage” answers to 1 decimal place and other answers to the nearest whole dollar amounts.) #### Traditional Cost System **B300** - **Direct Materials:** - Amount: $400,700 - % of Total Cost: 71.2% **T500** - **Direct Materials:** - Amount: $1,620,000 - % of Total Cost: 28.8% **Total** - **Direct Materials:** $2,020,700 - **Direct Labor:** $0 - **Total Cost Assigned to Products:** $2,020,700 - **Total Cost:** $2,020,700 #### Activity-Based Costing System **B300** - **Direct Costs:** - (Details to be filled in based on further calculations) - **Indirect Costs:** - (Details to be filled in based on further calculations) - **Total Cost Assigned to Products:** $0 **T500** - **Direct Costs:** - (Details to be filled in based on further calculations) - **Indirect Costs:** - (Details to be filled in based on further calculations) - **Total Cost Assigned to Products:** $0 #### Costs Not Assigned to Products **Total Cost:** $0 --- **Graphical Analysis:** The comparison involves detailed spreadsheets divided into Traditional Cost System and Activity-Based Costing System. - In the Traditional Cost System, direct materials for product B300 are $400,700 which accounts for 71.2% of the total cost, whereas for T500, it is $1,620,000 which represents 28.8% of the total cost. The combined total direct materials cost is $2,020,700. - The Activity-Based Costing System section is currently unfilled, indicating that specific indirect and direct costs need to be allocated to both products, B300 and T500. By working through the detailed steps and calculations, students will be able to complete the respective sections and draw parallels between the two costing methodologies, highlighting the distribution and percentage allocations of costs across different products.
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