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 $ 1,755,300 Cost of goods sold 1,253,994 Gross margin 501,306 Selling and administrative expenses 610,000 Net operating loss $ (108,694 ) Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,700 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 $ 400,800 $ 162,200 $ 563,000 Direct labor $ 120,200 $ 42,400 162,600 Manufacturing overhead 528,394 Cost of goods sold $ 1,253,994 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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 Overhead Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 208,624 91,000 62,400 153,400 Setups (setup hours) 158,670 79 290 369 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,300 NA NA NA Total manufacturing overhead cost $ 528,394 Required: 1. 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.

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 $ 1,755,300 Cost of goods sold 1,253,994 Gross margin 501,306 Selling and administrative expenses 610,000 Net operating loss $ (108,694 ) Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,700 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 $ 400,800 $ 162,200 $ 563,000 Direct labor $ 120,200 $ 42,400 162,600 Manufacturing overhead 528,394 Cost of goods sold $ 1,253,994 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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 Overhead Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 208,624 91,000 62,400 153,400 Setups (setup hours) 158,670 79 290 369 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,300 NA NA NA Total manufacturing overhead cost $ 528,394 Required: 1. 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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	$	1,755,300
Cost of goods sold		1,253,994
Gross margin		501,306
Selling and administrative expenses		610,000
Net operating loss	$	(108,694	)

Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,700 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	$	400,800	$	162,200	$	563,000
Direct labor	$	120,200	$	42,400		162,600
Manufacturing overhead						528,394
Cost of goods sold					$	1,253,994

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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 Overhead	Activity
Activity Cost Pool (and Activity Measure)	B300	T500	Total
Machining (machine-hours)	$	208,624		91,000	62,400	153,400
Setups (setup hours)		158,670		79	290	369
Product-sustaining (number of products)		100,800		1	1	2
Other (organization-sustaining costs)		60,300		NA	NA	NA
Total manufacturing overhead cost	$	528,394

Required:

1. 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.

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