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 $ 1,693,400 Cost of goods sold 1,219,200 Gross margin 474,200 Selling and administrative expenses 630,000 Net operating loss $ (155,800) Hi-Tek produced and sold 60,100 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’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 $ 162,600 $ 563,400 Direct labor $ 120,300 $ 42,100 162,400 Manufacturing overhead 493,400 Cost of goods sold $ 1,219,200 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 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) $ 199,160 90,300 62,900 153,200 Setups (setup hours) 132,440 71 230 301 Product-sustaining (number of products) 101,400 1 1 2 Other (organization-sustaining costs) 60,400 NA NA NA Total manufacturing overhead cost $ 493,400 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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	$ 1,693,400
Cost of goods sold	1,219,200
Gross margin	474,200
Selling and administrative expenses	630,000
Net operating loss	$ (155,800)

Hi-Tek produced and sold 60,100 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’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	$ 162,600	$ 563,400
Direct labor	$ 120,300	$ 42,100	162,400
Manufacturing overhead			493,400
Cost of goods sold			$ 1,219,200

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 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)	$ 199,160	90,300	62,900	153,200
Setups (setup hours)	132,440	71	230	301
Product-sustaining (number of products)	101,400	1	1	2
Other (organization-sustaining costs)	60,400	NA	NA	NA
Total manufacturing overhead cost	$ 493,400

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

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