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 | $ | 1,759,800 | |
Cost of goods sold | 1,248,243 | ||
Gross margin | 511,557 | ||
Selling and administrative expenses | 650,000 | ||
Net operating loss | $ | (138,443 | ) |
Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,600 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 | T500 | Total | ||||
Direct materials | $ | 400,600 | $ | 162,300 | $ | 562,900 |
Direct labor | $ | 120,000 | $ | 43,000 | 163,000 | |
Manufacturing overhead | 522,343 | |||||
Cost of goods sold | $ | 1,248,243 | ||||
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 $106,000 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 |
Activity | |||||
Activity Cost Pool (and Activity Measure) | B300 | T500 | Total | |||
Machining (machine-hours) | $ | 203,623 | 90,600 | 62,500 | 153,100 | |
Setups (setup hours) | 157,520 | 78 | 280 | 358 | ||
Product-sustaining (number of products) | 101,000 | 1 | 1 | 2 | ||
Other (organization-sustaining costs) | 60,200 | NA | NA | NA | ||
Total manufacturing overhead cost | $ | 522,343 | ||||
Required:
1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.
2. Compute the product margins for B300 and T500 under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
please help me i have worked on this for hours and i don't understand the product margins.
1) | predetermined overhead rate | ||||||||
total estimated manufacturing overhead/total estimated direct labor dollars | |||||||||
522343/163000 | |||||||||
3.204558 | |||||||||
product margin using traditional appraoch | |||||||||
B300 | T500 | total | |||||||
sales | 1268400 | 491400 | 1759800 | ||||||
less:Expenses | |||||||||
direct materials | 400600 | 162300 | 562900 | ||||||
direct labor | 120000 | 43000 | 163000 | ||||||
manufacturing OH applied @3.09 | 384547 | 137796 | 522343 | ||||||
total manufacturing cost | 905147 | 343096 | 1248243 | ||||||
product margin | 363253 | 148304 | 511557 | answer | |||||
2) | ABC activity based | ||||||||
Activity rates | |||||||||
(a) | (b) | c=a/b | |||||||
Activity cost pools | total cost | total | Activity rate | ||||||
activity | |||||||||
machining | 203,623 | 153,100 | 1.33 | per machine hour | |||||
Setups | 157,520 | 358 | 440 | per setup hour | |||||
product sustaining | 101,000 | 2 | 50500 | per product | |||||
product margin under ABC accounting | |||||||||
B300 | T500 | total | |||||||
sales | 1268400 | 491400 | 1759800 | ||||||
less:Expenses | |||||||||
direct materials | 400600 | 162300 | 562900 | ||||||
direct labor | 120000 | 43000 | 163000 | ||||||
Advertising expense | 57,000 | 106,000 | 163000 | ||||||
manufacturing overhead assigned | |||||||||
machining | 120498 | 83125 | 203623 | ||||||
Setups | 34320 | 123200 | 157520 | ||||||
product sustaining | 50500 | 50500 | 101000 | ||||||
total cost | 782,918 | 568,125 | 1351043 | ||||||
product margin | 485482 | -76725 | 408757 | ||||||
Traditional cost system | B 300 | T -500 | |||||||
3) | % of total | % of total | Total | ||||||
amount | amount | amount | amount | amount | |||||
Traditional cost system | |||||||||
Direct materials | 400600 | 71.2% | 162300 | 28.8% | 562900 | ||||
direct labor | 120000 | 73.6% | 43000 | 26.4% | 163000 | ||||
manufacturing overhead | 384547 | 73.6% | 137796 | 26.4% | 522343 | ||||
total cost assigned to products | 1248243 | ||||||||
selling & administrative cost | 650,000 | ||||||||
total cost. | 1898243 | ||||||||
B 300 | T -500 | ||||||||
% of total | % of total | Total | |||||||
amount | amount | amount | amount | amount | |||||
ABC based costing system | |||||||||
Direct costs | |||||||||
direct materials | 400600 | 71.2% | 162300 | 28.8% | 562900 | ||||
direct labor | 120000 | 73.6% | 43000 | 26.4% | 163000 | ||||
Advertising expense | 57,000 | 35.0% | 106,000 | 65.0% | 163000 | ||||
Indirect costs: | |||||||||
machining | 120498 | 59.2% | 83125 | 40.8% | 203623 | ||||
Setups | 34320 | 21.8% | 123200 | 78.2% | 157520 | ||||
product sustaining | 50500 | 50.0% | 50500 | 50.0% | 101000 | ||||
total cost assigned to products | 782918 | 568125 | 1351043 | ||||||
cost not assigned to products | |||||||||
Selling & administrative expense | 487,000 | ||||||||
other | 60,200 | ||||||||
total cost. | 1898243 |
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,703,200 Cost of goods sold 1,206,782 Gross margin 496,418 Selling and administrative expenses 570,000 Net operating loss $ (73,582 ) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,800 units of T500 at a price of $39 per unit....
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 below: Hi-Tek Manufacturing Inc. Income Statement Sales $ 1,716,000 Cost of goods sold 1,203,159 Gross margin 512,841 Selling and administrative expenses 600,000 Net operating loss $ (87,159) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $40 per unit....
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 $ 1,772,400 Cost of goods sold 1,242,484 Gross margin 529,916 Selling and administrative expenses 610,000 Net operating loss $ (80,084 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $40 per unit....
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 $ 1,774,300 Cost of goods sold 1,251,130 Gross margin 523,170 Selling and administrative expenses 630,000 Net operating loss $ (106,830 ) Hi-Tek produced and sold 60,300 units of B300 at a price of $21 per unit and 12,700 units of T500 at a price of $40 per unit....
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 $ 1,655,600 Cost of goods sold 1,233,735 Gross margin 421,865 Selling and administrative expenses 600,000 Net operating loss $ (178,135 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit....
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 $ 1,708,000 Cost of goods sold 1,228,693 Gross margin 479,307 Selling and administrative expenses 550,000 Net operating loss $ (70,693 ) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $40 per unit....
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 $ 1,649,900 Cost of goods sold 1,222,294 Gross margin 427,606 Selling and administrative expenses 560,000 Net operating loss $ (132,394 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price...
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 $ 1,691,500 Cost of goods sold 1,214,870 Gross margin 476,630 Selling and administrative expenses 580,000 Net operating loss $ (103,370 ) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,500 units of T500 at a price of $39 per unit....
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 $ 1,649,900 Cost of goods sold 1,254,430 Gross margin 395,470 Selling and administrative expenses 560,000 Net operating loss $ (164,530 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit....
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 $ 1,705,200 Cost of goods sold 1,242,098 Gross margin 463,102 Selling and administrative expenses 610,000 Net operating loss $ (146,898 ) Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,800 units of T500 at a price of $39 per unit....