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 $ 1,637,200 Cost of goods sold 1,230,044 Gross margin 407,156 Selling and administrative expenses 610,000 Net operating loss $ (202,844) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 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: B300 T500 Total Direct materials $ 400,800 $ 162,200 $ 563,000 Direct labor $ 120,100 $ 42,500 162,600 Manufacturing overhead 504,444 Cost of goods sold $ 1,230,044 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $50,000 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: Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 202,884 91,000 62,700 153,700 Setups (setup hours) 139,860 73 260 333 Product-sustaining (number of products) 101,400 1 1 2 Other (organization-sustaining costs) 60,300 NA NA NA Total manufacturing overhead cost $ 504,444 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. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin $ $ $ Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin $0 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 Total Amount % of % of Amount Amount Traditional Cost System Total cost assigned to products $0 $0 $0 Total cost $0 B300 T500 Total Amount % of % of Amount Total Amount Amount Total Amount Activity-Based Costing System Direct costs: Indirect costs: Total cost assigned to products $0 $0 0 Costs not assigned to products: Total cost $0

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 $ 1,637,200 Cost of goods sold 1,230,044 Gross margin 407,156 Selling and administrative expenses 610,000 Net operating loss $ (202,844) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 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: B300 T500 Total Direct materials $ 400,800 $ 162,200 $ 563,000 Direct labor $ 120,100 $ 42,500 162,600 Manufacturing overhead 504,444 Cost of goods sold $ 1,230,044 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $50,000 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: Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 202,884 91,000 62,700 153,700 Setups (setup hours) 139,860 73 260 333 Product-sustaining (number of products) 101,400 1 1 2 Other (organization-sustaining costs) 60,300 NA NA NA Total manufacturing overhead cost $ 504,444 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. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin $ $ $ Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin $0 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 Total Amount % of % of Amount Amount Traditional Cost System Total cost assigned to products $0 $0 $0 Total cost $0 B300 T500 Total Amount % of % of Amount Total Amount Amount Total Amount Activity-Based Costing System Direct costs: Indirect costs: Total cost assigned to products $0 $0 0 Costs not assigned to products: Total cost $0

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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Question

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	$ 1,637,200
Cost of goods sold	1,230,044
Gross margin	407,156
Selling and administrative expenses	610,000
Net operating loss	$ (202,844)

Hi-Tek produced and sold 60,100 units of B300 at a price of $19 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:

	B300	T500	Total
Direct materials	$ 400,800	$ 162,200	$ 563,000
Direct labor	$ 120,100	$ 42,500	162,600
Manufacturing overhead			504,444
Cost of goods sold			$ 1,230,044

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $50,000 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:

Activity Cost Pool (and Activity Measure)	Manufacturing Overhead	Activity
B300	T500	Total
Machining (machine-hours)	$ 202,884	91,000	62,700	153,700
Setups (setup hours)	139,860	73	260	333
Product-sustaining (number of products)	101,400	1	1	2
Other (organization-sustaining costs)	60,300	NA	NA	NA
Total manufacturing overhead cost	$ 504,444

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.

Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

	B300	T500	Total
Product margin	$	$	$

Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

	B300	T500	Total
Product margin			$0

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)

	B300	T500	Total Amount
	% of		% of
Amount		Amount
Traditional Cost System



Total cost assigned to products	$0		$0	$0

Total cost				$0

	B300	T500	Total Amount
	% of		% of
Amount	Total Amount	Amount	Total Amount
Activity-Based Costing System
Direct costs:



Indirect costs:



Total cost assigned to products	$0		$0	0
Costs not assigned to products:


Total cost				$0

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