i-Tek Manufacturing, Inc., 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 Inc. Income Statement Sales $ 1,699,300 Cost of goods sold 1,232,464 Gross margin 466,836 Selling and administrative expenses 630,000 Net operating loss $ (163,164 ) Hi-Tek produced and sold 60,200 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: B300 T500 Total Direct materials $ 400,900 $ 162,900 $ 563,800 Direct labor $ 120,900 $ 42,800 163,700 Manufacturing overhead 504,964 Cost of goods sold $ 1,232,464 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 $104,000 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 Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 211,554 90,600 62,700 153,300 Setups (setup hours) 131,610 71 250 321 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 60,600 NA NA NA Total manufacturing overhead cost $ 504,964 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 $0 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 % of % of Amount Amount Amount Traditional Cost System Direct labor $120,900 % % Direct materials % % Manufacturing overhead % % Total cost assigned to products $120,900 $0 $0 Selling and administrative Total cost $0 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Advertising expense % % Direct labor % % Direct materials % % Indirect costs: Machining % % Product sustaining % % Setups % % Total cost assigned to products $0 $0 0 Costs not assigned to products: Selling and administrative Other Total cost $0

i-Tek Manufacturing, Inc., 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 Inc. Income Statement Sales $ 1,699,300 Cost of goods sold 1,232,464 Gross margin 466,836 Selling and administrative expenses 630,000 Net operating loss $ (163,164 ) Hi-Tek produced and sold 60,200 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: B300 T500 Total Direct materials $ 400,900 $ 162,900 $ 563,800 Direct labor $ 120,900 $ 42,800 163,700 Manufacturing overhead 504,964 Cost of goods sold $ 1,232,464 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 $104,000 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 Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 211,554 90,600 62,700 153,300 Setups (setup hours) 131,610 71 250 321 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 60,600 NA NA NA Total manufacturing overhead cost $ 504,964 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 $0 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 % of % of Amount Amount Amount Traditional Cost System Direct labor $120,900 % % Direct materials % % Manufacturing overhead % % Total cost assigned to products $120,900 $0 $0 Selling and administrative Total cost $0 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Advertising expense % % Direct labor % % Direct materials % % Indirect costs: Machining % % Product sustaining % % Setups % % Total cost assigned to products $0 $0 0 Costs not assigned to products: Selling and administrative Other 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, Inc., 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 Inc. Income Statement
Sales	$	1,699,300
Cost of goods sold		1,232,464
Gross margin		466,836
Selling and administrative expenses		630,000
Net operating loss	$	(163,164	)

Hi-Tek produced and sold 60,200 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:

	B300	T500	Total
Direct materials	$	400,900	$	162,900	$	563,800
Direct labor	$	120,900	$	42,800		163,700
Manufacturing overhead						504,964
Cost of goods sold					$	1,232,464

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 $104,000 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	Activity
Activity Cost Pool (and Activity Measure)	B300	T500	Total
Machining (machine-hours)	$	211,554		90,600	62,700	153,300
Setups (setup hours)		131,610		71	250	321
Product-sustaining (number of products)		101,200		1	1	2
Other (organization-sustaining costs)		60,600		NA	NA	NA
Total manufacturing overhead cost	$	504,964

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			$0

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
		% of		% of
	Amount			Amount			Amount
Traditional Cost System
Direct labor	$120,900		%			%
Direct materials			%			%
Manufacturing overhead			%			%
Total cost assigned to products	$120,900			$0			$0
Selling and administrative
Total cost							$0

	B300	T500	Total
		% of		% of
	Amount	Total Amount	Amount	Total Amount	Amount
Activity-Based Costing System
Direct costs:
Advertising expense			%			%
Direct labor			%			%
Direct materials			%			%
Indirect costs:
Machining			%			%
Product sustaining			%			%
Setups			%			%
Total cost assigned to products	$0			$0			0
Costs not assigned to products:
Selling and administrative
Other
Total cost							$0

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