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 $ 1,639, 100 1,211,630 427, 470 570,000 $ (142,530) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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 $ 400,000 $ 120,700 T500 $ 162,000 $ 42,800 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,000 163,500 486,130 $1,211,630

Answer 1

Answers 1 Product Margin under Traditional Costing T500 Total B300 Product Margin 2 Product Margin under Activity Based costing 163384 428005 264621 T500 Total B300 Product Margin 364952 -31082 333870

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Total B300 T500 Traditional Costing System Direct Material Direc tLabor Manufacturing Overheads Total Cost Assigned to Products Selling and Administrative Expenses Total Cost Amount Amount 71.2% 162000 28.8% 562000 400000 120700 73.8% 42800 26.2% 163500 26.2% 358479 73.8% 127116 485595 879179 331916 1211095 570000 1781095

Quantitative Comparison of Acticity Based Cost Assignments Total T500 B300 Activty Based Costing System Direct Cost Direct Material Direct Labor Advertisements (Traced) Indirect Cost Machining Batch setup Prodcut Sustainind Total Cost Assigned to Products Cost Not asigned to the Products Selling and Administrative Expenses Amount Amount 562000 400000 71.2% 162000 28.8% 73.8% 120700 42800 26.2% 163500 35.1% 54000 100000 64.9% 154000 59.3% 118948 81482 40.7% 200430 35100 28.1% 90000 71.9% 125100 50100 50.0% 50100 50.0% 100200 778848 526382 1305230 416000 Others 60400 Total Cost 1721230

Working Notes Total взоо T500 Selling Price Direct Material Direct Labor Production in Units Manufacturing Overheads Advertisements (Traced) Selling and Administrative Expenses Maufacturing OH Estimated Labor Dollars 7Predetermined Overhead Rate 19 39 400000 162000 562000 120700 42800 163500 60200 12700 72900 486130 54000 100000 570000 486130 163500 2.97 486130/163500 мон Activity Total 62200 153000 B300 T500 Machining Setups Prodcut sustaining Others 00806 78 200430 125100 200 278 100200 1 1 2 60400 486130 Traditional Costing System Total B300 Т500 sales Direct Material Direct Labor Manufacturing Overheads Total Manufacturing Cost Product Margin 1143800 495300 1639100 400000 162000 562000 163500 120700 42800 358479 127116 485595 879179 331916 1211095 163384 264621 428005

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Estimated OH Activity Rate Base 200430 153000 1.31 125100 450.00 278 50100 100200 2 Activity Based Costing System T500 Total B300 sales Direct Material Direct Labor Advertisements (Traced) Machining Batch setup Prodcut Sustaining Total Cost Product Margin 495300 1143800 1639100 562000 400000 162000 163500 120700 42800 54000 100000 154000 118948 81482 200430 35100 125100 90000 50100 50100 100200 526382 1305230 778848 364952 333870 -31082