Hi-Tek Manufacturing Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 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: Direct materials Direct labor Manufacturing overhead. Cost of goods sold $ 1,710,000 1,242, 416 467,584 620,000 $ (152,416) B300 $ 400,200 $ 120,100 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 T500 $ 162,500 $ 42,600 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 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: Total $ 562,700 162,700 517,016 $ 1,242,416 Manufacturing Overhead $ 209,336 146,080 100,600 61,000 $ 517,016 B300 90,400 72 1 ΝΑ Activity T500 62,400 260 1 ΝΑ Total 152,800 332 2 ΝΑ 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 Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 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: Direct materials Direct labor Manufacturing overhead. Cost of goods sold $ 1,710,000 1,242, 416 467,584 620,000 $ (152,416) B300 $ 400,200 $ 120,100 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 T500 $ 162,500 $ 42,600 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 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: Total $ 562,700 162,700 517,016 $ 1,242,416 Manufacturing Overhead $ 209,336 146,080 100,600 61,000 $ 517,016 B300 90,400 72 1 ΝΑ Activity T500 62,400 260 1 ΝΑ Total 152,800 332 2 ΝΑ 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Hi-Tek Manufacturing Incorporated
Income Statement
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating loss
Hi-Tek produced and sold 60,100 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:
Direct materials
Direct labor
Manufacturing overhead
Cost of goods sold
$ 1,710,000
1,242, 416
467,584
620,000
$ (152,416)
B300
$ 400,200
$ 120, 100
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
T500
$ 162,500
$ 42,600
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation
team concluded that $52,000 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:
Total
$ 562,700
162,700
517, 016
$ 1,242, 416
Manufacturing
Overhead
$ 209,336
146,080
100,600
61,000
$ 517,016
B300
90,400
72
1
ΝΑ
Activity
T500
62,400
260
1
ΝΑ
Total
152,800
332
2
ΝΑ
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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