Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,770,300 1,223,400 546,900 560,000 $ (13,100) Hi-Tek produced and sold 60,300 units of B300 at a price of $21 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 $ 400,700 $ 162,600 $ 120,300 $ 42,500 Total $ 563,300 162,800 497,300 $ 1,223,400 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 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: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 203,490 131,610 101,400 60,800 B300 90,400 Activity T500 62,600 71 250 1 1 Total 153,000 321 2 NA ΝΑ NA $ 497,300 Traditional Cost System Direct labor Manufacturing overhead. Direct materials B300 % of T500 % of Amount Total Amount Amount Total Amount Total Amount Total cost assigned to products S 0 S 0 S 0 Selling and administrative Total cost Activity-Based Costing System Direct costs: Advertising expense Direct labor Direct materials Indirect costs: Machining Product sustaining S 0 B300 T500 % of % of Total Amount Total Amount Amount Amount Total Amount Setups Total cost assigned to products S 0 S 0 0 Costs not assigned to products: Other Selling and administrative Total cost $ 0

Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,770,300 1,223,400 546,900 560,000 $ (13,100) Hi-Tek produced and sold 60,300 units of B300 at a price of $21 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 $ 400,700 $ 162,600 $ 120,300 $ 42,500 Total $ 563,300 162,800 497,300 $ 1,223,400 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 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: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 203,490 131,610 101,400 60,800 B300 90,400 Activity T500 62,600 71 250 1 1 Total 153,000 321 2 NA ΝΑ NA $ 497,300 Traditional Cost System Direct labor Manufacturing overhead. Direct materials B300 % of T500 % of Amount Total Amount Amount Total Amount Total Amount Total cost assigned to products S 0 S 0 S 0 Selling and administrative Total cost Activity-Based Costing System Direct costs: Advertising expense Direct labor Direct materials Indirect costs: Machining Product sustaining S 0 B300 T500 % of % of Total Amount Total Amount Amount Amount Total Amount Setups Total cost assigned to products S 0 S 0 0 Costs not assigned to products: Other Selling and administrative Total cost $ 0

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 4MC: Overhead costs are assigned to each product based on __________________. A. the proportion of that...

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