Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statemen for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement 700 000
Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statemen for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement 700 000
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter18: Activity-based Costing
Section: Chapter Questions
Problem 8E: Comfort Foods Inc. uses activity-based costing to determine product costs. For each activity listed...
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Question
![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
$ 1,708,000
1,255,280
452,720
620,000
$ (167,280)
Hi-Tek produced and sold 60,000 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
B300
$ 400,600
$ 121,000
T500
$ 163,000
$ 42,400
Total
$ 563,600
163,400
528,280
$ 1,255,280
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 $107,000 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
$ 214,340
152,040
101,200
B300
90,300
72
Activity
T500
62,800
290
111
Total
153,100
362
2
60,700
NA
NA
NA
$ 528,280](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F43e6603a-9038-4d24-8ca1-a70b4f9b8abe%2Fba5c7bd5-be68-44c2-84f5-e2a40964ea7e%2F7ao1ezd_processed.jpeg&w=3840&q=75)
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
$ 1,708,000
1,255,280
452,720
620,000
$ (167,280)
Hi-Tek produced and sold 60,000 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
B300
$ 400,600
$ 121,000
T500
$ 163,000
$ 42,400
Total
$ 563,600
163,400
528,280
$ 1,255,280
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 $107,000 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
$ 214,340
152,040
101,200
B300
90,300
72
Activity
T500
62,800
290
111
Total
153,100
362
2
60,700
NA
NA
NA
$ 528,280
![Compute the product margins for B300 and T500 under the company's traditional costing system. Compute the product margins for B300 and T500 under the activity-based costing system. Prepare a quantitative
comparison of the traditional and activity-based cost assignments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F43e6603a-9038-4d24-8ca1-a70b4f9b8abe%2Fba5c7bd5-be68-44c2-84f5-e2a40964ea7e%2Fmtoi1xg_processed.png&w=3840&q=75)
Transcribed Image Text:Compute the product margins for B300 and T500 under the company's traditional costing system. Compute the product margins for B300 and T500 under the activity-based costing system. Prepare a quantitative
comparison of the traditional and activity-based cost assignments.
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VIEWStep 3: Compute the product margins for B300 and T500 under the activity-based costing system:
VIEWStep 4: Prepare a quantitative comparison of the traditional and activity-based cost assignments:
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