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 $ 1,712,000 Cost of goods sold 1,244,712 Gross margin 467,288 Selling and administrative expenses 620,000 Net operating loss $ (152,712 ) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 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: B300 T500 Total Direct materials $ 400,700 $ 162,100 $ 562,800 Direct labor $ 120,500 $ 42,700 163,200 Manufacturing overhead 518,712 Cost of goods sold $ 1,244,712 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 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) $ 212,392 90,700 62,100 152,800 Setups (setup hours) 143,620 74 260 334 Product-sustaining (number of products) 102,000 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 518,712 2. Compute the product margins for B300 and T500 under the activity-based costing system.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

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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	$	1,712,000
Cost of goods sold		1,244,712
Gross margin		467,288
Selling and administrative expenses		620,000
Net operating loss	$	(152,712	)

Hi-Tek produced and sold 60,200 units of B300 at a price of $20 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:

	B300	T500	Total
Direct materials	$	400,700	$	162,100	$	562,800
Direct labor	$	120,500	$	42,700		163,200
Manufacturing overhead						518,712
Cost of goods sold					$	1,244,712

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 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)	$	212,392		90,700	62,100	152,800
Setups (setup hours)		143,620		74	260	334
Product-sustaining (number of products)		102,000		1	1	2
Other (organization-sustaining costs)		60,700		NA	NA	NA
Total manufacturing overhead cost	$	518,712

2. Compute the product margins for B300 and T500 under the activity-based costing system.

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