Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Sales Hi-Tek Manufacturing, Incorporated Cost of goods sold Gross margin Income Statement Selling and administrative expenses Net operating loss $ 1,706,000 1,215,720 490,280 630,000 $ (139,720) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 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 B300 $ 400,600 $ 162,400 $ 121,000 $ 42,100 T500 Total $ 563,000 163,100 489,620 $ 1,215,720 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $102,000 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 Required: Manufacturing Overhead $ 201,300 126,420 B300 90,100 Activity T500 Total 62,400 152,500 71 230 301 101,600 1 1 2 60,300 NA NA NA $ 489,620 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-B300 and T500. An absorption costing income statement for the most recent period is shown below: Sales Hi-Tek Manufacturing, Incorporated Cost of goods sold Gross margin Income Statement Selling and administrative expenses Net operating loss $ 1,706,000 1,215,720 490,280 630,000 $ (139,720) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 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 B300 $ 400,600 $ 162,400 $ 121,000 $ 42,100 T500 Total $ 563,000 163,100 489,620 $ 1,215,720 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $102,000 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 Required: Manufacturing Overhead $ 201,300 126,420 B300 90,100 Activity T500 Total 62,400 152,500 71 230 301 101,600 1 1 2 60,300 NA NA NA $ 489,620 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-B300 and T500. An absorption costing income statement
for the most recent period is shown below:
Sales
Hi-Tek Manufacturing, Incorporated
Cost of goods sold
Income Statement
Gross margin
Selling and administrative expenses
Net operating loss
$ 1,706,000
1,215,720
490,280
630,000
$ (139,720)
Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 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
B300
$ 400,600
$ 121,000
T500
$ 162,400
$ 42,100
Total
$ 563,000
163,100
489,620
$ 1,215,720
The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team
concluded that $57,000 and $102,000 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
Required:
Manufacturing
Overhead
$ 201,300
126,420
B300
90,100
Activity
T500
Total
62,400
152,500
71
230
101,600
1
1
301
2
60,300
NA
NA
NA
$ 489,620
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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