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 $ 1,631,300 1,239,528 391,772 Net operating loss 590,000 $ (198,228) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 per unit and 12,500 units of T500 at a price of $39 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 $ 400,400 $ 120,800 T500 $ 162,100 $ 42,100 Total $ 562,500 162,900 514,128 $ 1,239,528 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) Manufacturing Overhead Setups (setup hours) Product-sustaining (number of products) $ 212,948 140,280 100,600 B300 90,800 Activity T500 Total 62,400 74 1 260 1 153,200 334 2 Other (organization-sustaining costs) 60,300 NA ΝΑ ΝΑ Total manufacturing overhead cost $ 514,128 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-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 $ 1,631,300 1,239,528 391,772 Net operating loss 590,000 $ (198,228) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 per unit and 12,500 units of T500 at a price of $39 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 $ 400,400 $ 120,800 T500 $ 162,100 $ 42,100 Total $ 562,500 162,900 514,128 $ 1,239,528 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) Manufacturing Overhead Setups (setup hours) Product-sustaining (number of products) $ 212,948 140,280 100,600 B300 90,800 Activity T500 Total 62,400 74 1 260 1 153,200 334 2 Other (organization-sustaining costs) 60,300 NA ΝΑ ΝΑ Total manufacturing overhead cost $ 514,128 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9E: The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the...

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