Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Incorporated Income Statement Sales $1,695,400 Cost of goods sold 1,221,040 Gross margin 474,360 Selling and administrative expenses 630,000 Net operating loss $ (155,640) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit. The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $105,000 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) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 203,490 90,800 62,200 153,000 Setups (setup hours) 131,150 75 230 305 Product-sustaining (number of products) 100,200 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $495,640 Required: 1. Compute the product margins for the 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 types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Incorporated Income Statement Sales $1,695,400 Cost of goods sold 1,221,040 Gross margin 474,360 Selling and administrative expenses 630,000 Net operating loss $ (155,640) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit. The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $105,000 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) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 203,490 90,800 62,200 153,000 Setups (setup hours) 131,150 75 230 305 Product-sustaining (number of products) 100,200 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $495,640 Required: 1. Compute the product margins for the 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
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Transcribed Image Text:Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the B300 and the T500. An
absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Incorporated Income
Statement Sales $1,695,400 Cost of goods sold 1,221,040 Gross margin 474,360 Selling and administrative expenses
630,000 Net operating loss $ (155,640) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and
12,600 units of T500 at a price of $39 per unit. The company has created an activity-based costing system to evaluate the
profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $105,000 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) Manufacturing
Overhead Activity B300 T500 Total Machining (machine-hours) $ 203,490 90,800 62,200 153,000 Setups (setup hours)
131,150 75 230 305 Product-sustaining (number of products) 100,200 1 1 2 Other (organization-sustaining costs) 60,800
NA NA NA Total manufacturing overhead cost $495,640 Required: 1. Compute the product margins for the 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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