Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-8300 and T500. An absorption costing income statement for the most recent period is shown below. Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,647,600 1,215,224 432,376 620,000 $ (187,624) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,500 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 8388 T500 $ 400,400 $ 120,100 $163,000 $ 42,300 Total $ 563,400 162,400 489,424 $1,215,224 The company 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. 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 $ 202,224 126,400 100,000 8300 98,900 Activity 7500 Total 62,300 153,200 76 248 316 1 1 2 60,800 NA NA NA $ 489,424 Required: 1. Compute the product margins for 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, makes two industrial component parts-8300 and T500. An absorption costing income statement for the most recent period is shown below. Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,647,600 1,215,224 432,376 620,000 $ (187,624) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,500 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 8388 T500 $ 400,400 $ 120,100 $163,000 $ 42,300 Total $ 563,400 162,400 489,424 $1,215,224 The company 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. 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 $ 202,224 126,400 100,000 8300 98,900 Activity 7500 Total 62,300 153,200 76 248 316 1 1 2 60,800 NA NA NA $ 489,424 Required: 1. Compute the product margins for 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, makes two industrial component parts-8300 and T500. An absorption costing income statement
for the most recent period is shown below.
Hi-Tek Manufacturing, Incorporated
Income Statement
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating loss
$ 1,647,600
1,215,224
432,376
620,000
$ (187,624)
Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,500 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
8388
T500
$ 400,400
$ 120,100
$163,000
$ 42,300
Total
$ 563,400
162,400
489,424
$1,215,224
The company 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.
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
$ 202,224
126,400
100,000
8300
98,900
Activity
7500
Total
62,300
153,200
76
248
316
1
1
2
60,800
NA
NA
NA
$ 489,424
Required:
1. Compute the product margins for 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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