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-Te Manufacturing Inc. Income Statement Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,695,500 1,218,042 477,458 600.000 $ (122.542) Hi-Tek produced and sold 60.400 units of B300 at a price of $20 per unit and 12,500 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: B200 $ 400, 800 $ 120, 400 1500 $ 163,000 $ 42, 600 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562.800 163.000 491, 242 $ 1.218,042 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $51,000 and $108,000 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 $ 204.022 124,320 102.000 60,900 $ 491.242 B200 90,500 76 Activity 1500 Total 62, 900 152, 400 220 Activity Cost Pool (and Activity Measure) Machining machine-hours) Setups (setup hours) Product-sustaining number of products) Other organisation-sustaining costs) Total manufacturing overhead cost 296 NA 12 NA

Answer 1

Answers 1 Product Margin under Traditional Costing B300 Product Margin 3243961 2 Product Margin under Activity Based costing B300 Product Margin 4325151 T500 153674 Total 478070 T500 -53157 Total 379358

3. Quantitative Comparison of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost B300 T500 Total Traditional Costing System Direct Material DirectLabor Manufacturing Overheads Total Cost Assigned to Products Selling and Administrative Expenses Total Cost Amount 400800 120400| 362404 883604 % 71.19 73.99 73.9%) Amount 163000| 42600 128226| 333826 % 28.99 26.196 26.19 5 63800 163000| 490630 1217430 6000001 1817430 Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Total Activty Based Costing System Amount % Amount % | Direct Cost Direct Material 400800 71.19 163000 28.99 5 63800 Direct Labor 120400 73.9% 42600 26.196 163000 Advertisements (Traced) 5100032.19108000 67.996159000 Indirect Cost Machining 120365 5 9.096 83657 41.096 204022 Batch setup 31920 25.796 92400 74.396 124320 Prodcut Sustainind 51000 50.096 51000 50.096 102000 Total Cost Assigned to Products 775485 540657 1316142 Cost Not asigned to the Products Selling and Administrative Expenses 4410001 Others 60900 Total Cost 1757142

Working Notes I B300 T500 Total Selling Price 201 3 9 Direct Material 400800 1 63000 563800 Direct Labor 120400 4 2600 163000 Production in Units 60400 12500 72900 Manufacturing Overheads 491242 Advertisements (Traced) 51000 1080001 Selling and Administrative Expenses 600000 Maufacturing OH 491242 Estimated Labor Dollars 163000 Predetermined Overhead Rate 3.01 491242/163000 MOH Activity B300 T500 Total Machining 204022 90500 62900|| 1534001 1243201 76 220296 Prodcut sustaining 102000 11 112 Others 491242 Traditional Costing System B300 T500 Total sales 1208000 487500 1 695500 Direct Material 400800 163000 5 63800 Direct Labor 120400 42600 163000 Manufacturing Overheads (Rate labour) 362404 128226 490630 Total Manufacturing Cost 883604 333826 1217430 Product Margin 324396 153674 478070 Setups

Base 153400 Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Activity Based Costing System Estimated OH 204022 124320 102000 Activity Rate 1.33 420.00 51000 296 sales Direct Material Direct Labor Advertisements (Traced) Matching Activity *Rate) Batch Setup (Activity *Rate) Prodcut Sustaining Total Cost Product Margin B300 1208000 400800 120400 51000 120365 31920 51000 775485 432515 T500 Total 487500 1695500 163000 563800 42600 163000 108000 159000 83657 204022 92400 124320 51000 102000 540657 1316142 -53157 379358