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: Ri-Tek Manufacturing Ine. Income tatement Bales Coat of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,757,400 1,210,-152 539,048 580.000 (40,952) HI-Tek produced and sold 60,100 units of B300 at a price of $21 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 $ 400,900 $ 120,100 T500 $ 162,200 $ 42,800 Direct materials Direct labor Manutacturing overhead Coat of goods sold T otal $ 563,100 1 62,900 492,352 $1,218,352 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 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:

Answer 1

Answers 1 Product Margin under Traditional Costing B300 L Product Margin 378398 2 Product Margin under Activity Based costing B300 Product Margin 477121 T500 161044 Total 539442 T500 -37873 Total 439248

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost B300 T500 Total % 563100 162900 491958 1217958 580000 1797958 Total Traditional Costing System Amount % Amount Direct Material 400900 71.2% 162200 28.8% DirectLabor 120100 73.7% 42800 26.3% Manufacturing Overheads 362702 73.7% 129256 26.3% Total Cost Assigned to Products 883702 334256 Selling and Administrative Expenses Total Cost Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System Amount % Amount % Direct Cost Direct Material 400900 71.2% 162200 28.8% Direct Labor 120100 73.7% 428001 26.3% Advertisements (Traced) 57000 35.6% 103000 64.4% Indirect Cost Machining 124259 59.0% 86173 41.0% Batch setup 31920 26.6% 88200 73.4% Prodcut Sustainind 50800 50.0% 508001 50.0% Total Cost Assigned to Products 784979 533173 Cost Not asigned to the Products Selling and Administrative Expenses Others Total Cost 563100 162900 160000 210432 120120 101600 1318152 420000 60200 1738152

3.0 Working Notes B300 T500 Total Selling Price 21 39 Direct Material 400900 162200 563100 Direct Labor 120100 42800 162900 Production in Units 60100 12700 72800 Manufacturing Overheads 492352 Advertisements (Traced) 57000 103000 Selling and Administrative Expenses 580000 Maufacturing OH 492352 Estimated Labor Dollars 162900 2 Predetermined Overhead Rate 3.02 492352/162900 мон Activity B300 T500 Total Machining 210432 9 070062900 153600 Setups 1201201 76 210 286 Prodcut sustaining 101600 Others 60200 492352 Traditional Costing System B300 L T500 Total sales [ 1262100 4 95300 1757400 Direct Material 400900 162200 563100 Direct Labor 1201001 428001162900 Manufacturing Overheads 362702 129256 491958) Total Manufacturing Cost 883702 334256 1217958 Product Margin 378398 161044 539442 000

Base Activity Rate 153600 1.37 286 420.00 2 50800 Determination of Activity Rate Activty Pool Estimated OH Machining 210432 Batch setup 120120 Prodcut Sustaining 101600 Activity Based Costing System B300 sales 1262100 Direct Material 400900 Direct Labor 120100 Advertisements (Traced) 57000 Matching Activity *Rate) 124259 Batch Setup (Activity Rate) 31920 Prodcut Sustaining 50800 Total Cost 784979 Product Margin 477121 T500 Total 495300 1757400 1622001 563100 42800 162900 103000 160000 861731 210432 88200 120120 50800 1016001 533173 1318152 -37873 439248