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 ex Net operating loss 1.715,000 1,205,665 512 33 (17,668) Hi-Tek produced and sold 60,500 units of B300 at a price of $20 per unit and 12.700 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 TS Direct materials plrect labor Manufacturing overhead $400,680 10.00 $ 162.9003 $ 42.500 563, see 163,00 0.668 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $56,000 and $105,000 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 ACTIVITY anufacturing Overhead 201.168 116.00 100,400 90.000 6000 Activity Cost Pool and Activity measure Machining machine-hours) Setups setup hours) Product sustaining number of products) other organization-sustaining costs) Total manufacturing overhead cost 152 $ 478.866 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

Answer 1

Calculation of product margin under traditional system
	B300	T500
Sales Revenue	1,210,000.00	468,000.00
Direct Material	400,600.00	162,900.00
Direct Labor	120,800.00	42,500.00
Overhead	354,239.16	124,628.84
Product Margin	334,360.84	137,971.16
Under ABC
	B300	T500
Sales Revenue	1,210,000.00	468,000.00
Direct Material	400,600.00	162,900.00
Direct Labor	120,800.00	42,500.00
Overhead
Machining	119328	81840
Setups	28800	88000
Product Sustaining	50200	50200
Product Margin	490,272.00	42,560.00
Comparison
	B300	T500
Product Margin under traditional	334,360.84	137,971.16
Under ABC	490,272.00	42,560.00
Difference	(155,911.16)	95,411.16

в 1 Calculation of product margin un 2 B300 3 Sales Revenue =60500*20 4 Direct Material 400600 5 Direct Labor 120800 6 Overhead =478868*B5/SUM(B5:05) 7 Product Margin =B3-SUM(B4:B6) T500 =11700*40 162900 42500 =478868*C5/SUM(B5:05) =C3-SUM(C4:C6) 9 Under ABC 10 B300 =60500*20 400600 120800 T500 =11700*40 162900 42500 11 Sales Revenue 12 Direct Material 13 Direct Labor 14 Overhead 15 Machining 16 Setups 17 Product Sustaining 18 Product Margin 19 =201168*90400/152400 =116800*72/292 =100400/2 =B11-SUM(B12:B17) =201168*62000/152400 =116800*220/292 =100400/2 =C11-SUM(C12:C17)