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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $1,653,900 1,248,762 405,138 580.000 (174.862 Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,800 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: Direet materials Direct labor Manufacturing overhead Cost of goods sold 3300 $ 400,600 $ 120,700 T500 $ 162.400 $ 42,200 Total $ 563,000 162,900 522,862 $1,248, 762 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 $109,000 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: Prev 1 of 3 Next >

Answer 1

solution o computation of product margin for the B300 and T500 under the company's traditimal costing system, Particulars B300 (8) T500(s) Total (8) sally W.41,900 5,12,000 16.53,900 Less: cost of goods sold Direct materials 4,00,600 1.62.400 5.63.000 Direct labour 1,20,700 42.000 1.62.900 manufacturing 3,87,412 1:35,450 5.22,862 auerherd (wN0-1) Product - margin 2.33,188 1141,950 4,05,138 working Note: I computation of Plant-wide over head rate and allocation of manufacturing over head to each Product Plant-wide overhead rati - estimated Total manufacturing Over hevad - X100 estimated direct labour dollors

= 5.22.862 X 100 1,69,900 = 320.971% per direct labour dollar Allocation of manufacturing over head to Product B300 = Total direct labour in x Plant wide dollars over hered rala - 1,20, 700x320.971% - 3,87, 411.997 - 3,87, 412 Product T50o = 42,200 x 320 941% = 1,35,450

② computation of product margins for Biod and Tsoo under the activity based casting system یہ سمح سیم لیہ کلر working Note & I Alocation of manufacturing overhead to each Product and calculation of activity Rate Per Activity Activity rate - Activity cost Pool manufacturing Overhead Total number of Activity activity rate machining 2.02.092 1.32 Pex my 1,53,100 machine hy's 369 Setul hours 430 per setup set URS 1.58,670 Product - Sustaining 101,600 50800 Per pro doct products other 60,500 si22,862

Allocation of manufacturing over head based on Actual Activity used by each product به تیم لیہ Activity COS Pool | Activity I rate a Activity manufacturino used I over head machining / 129 Setupus u30 Product Product B300 T500 ActivHY/ manufacturinst LG LG x used over had C lay 190 100 11,18,932/63,000/83,160 179 133.970 290 11,24,100 1 50800 1 150.800 12.03,702) 9,59,660 Product Sustaining 50.800 Product margin - Activity Balud costing Particulans B300 T500 Total sales 1901,900 $112.000 16.53.900 Less Cost of goods solo Direct material 400600 1.62,400 5.63,000 Diret labour 120700 42,200 1,69.900 manufacturing 2.03, 702 2,58,660 4,69,362 Product margin 4, 16,898 48.740 4,65,638

y ③ Preparation traditional Particulars of and quantitative comparison of Activity based cost - Assignments. B300 TSOO Total Amount of 24 Amount Amount Amount Traditional cost system Direct materials 4,00,600 71.15% 1,62.400 28.85 5,63,000 Direct labour 1,20,400 74.09% 48.200 25.91 1,69.90 manufacturing 3,87,412 762.09 1:35.450 25.91 522.862 over head Total cost Assigned to Product's 9.09,712 3,40,050 12,48,762 selling and Administrative S180,000 enfense Total Cost 18,28 1762

Activity based costing Direct materialy 400600 71.15% 1,62,400 28.85% 5,63,000 Direct labour 1,20,700 74.00% 42,200 25.91% 1,62.900 manufacturing over head 203,702 44.052,58,660 55.95 4,62,362 Total cost Assigned to Products 7.95,000 4,63,260 11,88.262 5.80,000 selling and Administratie expenses costs hot Assigned to Product Other 60,500 Total cost 18,28,762
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