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: 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 60,000 units of B300 at a price of $21 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. $ 1,764,000 1,217,575 546,425 640,000 $ (93,575) B300 $ 400,300 $ 120,900 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, 100 $ 42,400 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $108,000 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 $ 562,400 163,300 491,875 $ 1,217,575 Manufacturing Overhead $199,775 130,000 101, 200 60,900 $ 491,875 B300 90,500 75 1 NA Activity T500 62,000 250 1 ΝΑ Total 152,500 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. 325 2 ΝΑ
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: 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 60,000 units of B300 at a price of $21 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. $ 1,764,000 1,217,575 546,425 640,000 $ (93,575) B300 $ 400,300 $ 120,900 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, 100 $ 42,400 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $108,000 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 $ 562,400 163,300 491,875 $ 1,217,575 Manufacturing Overhead $199,775 130,000 101, 200 60,900 $ 491,875 B300 90,500 75 1 NA Activity T500 62,000 250 1 ΝΑ Total 152,500 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. 325 2 ΝΑ
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:
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 60,000 units of B300 at a price of $21 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
$ 1,764,000
1,217,575
546,425
640,000
$ (93,575)
B300
$ 400,300
$ 120,900
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, 100
$ 42,400
Total
$ 562,400
163,300
491,875
$ 1,217,575
The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC
implementation team concluded that $60,000 and $108,000 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
$ 199,775
130,000
101, 200
60,900
$ 491,875
B300
90,500
75
1
ΝΑ
Activity
T500
62,000
250
1
ΝΑ
Total
152,500
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.
325
2
NA
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