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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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 $ 1,697,300 1,223,490 473,810 560,000 $ (86,190) Manufacturing overhead Cost of goods sold 8300 $ 400,700 $ 120,200 T500 $ 162,400 $ 43,000 Total $ 563,100 163,200 497,190 $ 1,223,490 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $102,000 of the company's advertising expenses could be directly traced to B300 and T500.

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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 $ 1,697,300 1,223,490 473,810 560,000 $ (86,190) Manufacturing overhead Cost of goods sold 8300 $ 400,700 $ 120,200 T500 $ 162,400 $ 43,000 Total $ 563,100 163,200 497,190 $ 1,223,490 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $102,000 of the company's advertising expenses could be directly traced to B300 and T500.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 $ 1,697,300 1,223,490 473,810 560,000 $ (86,190) 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 B300 $ 400,700 $ 120,200 T500 $ 162,400 $ 43,000 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55.000 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: Manufacturing Overhead Total $ 563,100 163,200 497,190 $ 1,223,490 $ 198,250 137,340 101,000 60,600 $ 497,190 8300 90, 100 77 1 NA Activity T500 62,400 250 1 ΝΑ Total 152,500 327 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. 2 NA
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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 $ 1,697,300 1,223,490 473,810 560,000 $ (86,190) 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 B300 $ 400,700 $ 120,200 T500 $ 162,400 $ 43,000 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55.000 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: Manufacturing Overhead Total $ 563,100 163,200 497,190 $ 1,223,490 $ 198,250 137,340 101,000 60,600 $ 497,190 8300 90, 100 77 1 NA Activity T500 62,400 250 1 ΝΑ Total 152,500 327 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. 2 NA
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