Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 $ 1,657,500 1,224,620 432,880 620,000 $ (187,120) Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,700 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 labo dollars as the allocation base. Additional information relating to the company's two product lines is shown below: B300 T500 Total Direct materials Direct labor $ 400,600 $ 120,400 $ 162,700 $ 42,000 563,300 162,400 498,920 Manufacturing overhead Cost of goods sold $ 1,224,620 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementat ceam concluded that $55,000 and $101,000 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 alsc distributed the company's manufacturing overhead to four activities as shown below: Manufacturing Activity Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Overhead B300 T500 Total $ 205,740 131,580 90,100 62,300 230 152,400 306 76
Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 $ 1,657,500 1,224,620 432,880 620,000 $ (187,120) Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,700 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 labo dollars as the allocation base. Additional information relating to the company's two product lines is shown below: B300 T500 Total Direct materials Direct labor $ 400,600 $ 120,400 $ 162,700 $ 42,000 563,300 162,400 498,920 Manufacturing overhead Cost of goods sold $ 1,224,620 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementat ceam concluded that $55,000 and $101,000 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 alsc distributed the company's manufacturing overhead to four activities as shown below: Manufacturing Activity Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Overhead B300 T500 Total $ 205,740 131,580 90,100 62,300 230 152,400 306 76
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, LO7-4,
LO7-5]
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
$ 1,657,500
1,224,620
432,880
620,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating loss
$4
(187,120)
Hi-Tek produced and sold 60,500 units of B3o0 at a price of $19 per unit and 12,700 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:
в300
T500
Total
Direct materials
$ 400,600
$ 120,400
$ 162,700
$ 42,000
563,300
162,400
498,920
Direct labor
Manufacturing overhead
Cost of goods sold
$ 1,224,620
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementatic
team concluded that $55,000 and $101,000 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
Activity
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Overhead
в300
T500
Total
$ 205,740
131,580
90,100
62,300
152,400
306
76
230
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Transcribed Image Text:Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, LO7-4,
LO7-5]
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
$ 1,657,500
1,224,620
432,880
620,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating loss
$4
(187,120)
Hi-Tek produced and sold 60,500 units of B3o0 at a price of $19 per unit and 12,700 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:
в300
T500
Total
Direct materials
$ 400,600
$ 120,400
$ 162,700
$ 42,000
563,300
162,400
498,920
Direct labor
Manufacturing overhead
Cost of goods sold
$ 1,224,620
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementatic
team concluded that $55,000 and $101,000 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
Activity
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Overhead
в300
T500
Total
$ 205,740
131,580
90,100
62,300
152,400
306
76
230
%24
Transcribed Image Text:Manufacturing
Activity
в300
T500
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Product-sustaining (number of products)
Other (organization-sustaining costs)
Overhead
Total
$ 205,740
131,580
101,600
90,100
62,300
152,400
76
230
306
1
60,000
$ 498,920
NA
NA
NA
Total manufacturing overhead cost
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.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 3
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.)
В300
T500
Total
Product margin
< Required 1
Required 2 >
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