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 $ 1,712,000 Cost of goods sold 1,211,684 Gross margin 500,316 Selling and administrative expenses 620,000 Net operating loss $ (119,684) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 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 $ 400,300 $ 162,300 $ 562,600 Direct labor $ 120,000 $ 42,200 162,200 Manufacturing overhead 486,884 Cost of goods sold $ 1,211,684 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 and $103,000 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) $ 205,154 90,700 62,400 153,100 Setups (setup hours) 120,130 73 220 293 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $ 486,884 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 $ 1,712,000 Cost of goods sold 1,211,684 Gross margin 500,316 Selling and administrative expenses 620,000 Net operating loss $ (119,684) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 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 $ 400,300 $ 162,300 $ 562,600 Direct labor $ 120,000 $ 42,200 162,200 Manufacturing overhead 486,884 Cost of goods sold $ 1,211,684 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 and $103,000 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) $ 205,154 90,700 62,400 153,100 Setups (setup hours) 120,130 73 220 293 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $ 486,884 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Please help me answer questions 2 and 3

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	$ 1,712,000
Cost of goods sold	1,211,684
Gross margin	500,316
Selling and administrative expenses	620,000
Net operating loss	$ (119,684)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 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	$ 400,300	$ 162,300	$ 562,600
Direct labor	$ 120,000	$ 42,200	162,200
Manufacturing overhead			486,884
Cost of goods sold			$ 1,211,684

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 and $103,000 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)	$ 205,154	90,700	62,400	153,100
Setups (setup hours)	120,130	73	220	293
Product-sustaining (number of products)	100,800	1	1	2
Other (organization-sustaining costs)	60,800	NA	NA	NA
Total manufacturing overhead cost	$ 486,884

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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