Question

Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,800 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: B300 $ 400,100 $ 120,700 T500 $ 162,300 $ 42,890 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,400 163,500 528, 210 $1,254,110 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $102,000 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 $ 200, 430 165, 880 101,400 60,500 $ 528, 210 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 Activity B300 T588 Total 90,500 62,580 153,000 77 300 377 NA NANA 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product margins for the B300 and T500 under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin

Answer 1

Calculation of product margin under traditional system
	B300	T500
Sales Revenue	1,264,200.00	512,000.00
Direct Material	400,100.00	162,300.00
Direct Labor	120,700.00	42,800.00
Overhead	389,938.51	138,271.49
Selling and Admin Expenses	60,000.00	102,000.00
Product Margin	293,461.49	66,628.51
Under ABC
	B300	T500
Sales Revenue	1,264,200.00	512,000.00
Direct Material	400,100.00	162,300.00
Direct Labor	120,700.00	42,800.00
Overhead
Machining	118555	81875
Setups	33880	132000
Product Sustaining	50700	50700
Selling and Admin Expenses	60,000.00	102,000.00
Product Margin	480,265.00	-59,675.00
Comparison
	B300	T500
Traditional	293,461.49	66,628.51
ABC	480,265.00	-59,675.00
Difference	-186,803.51	126,303.51

11 А 1 Calculation of product margin under traditional system 2 B300 T500 3 Sales Revenue =60200*21 =12800*40 4 Direct Material 400100 162300 5 Direct Labor 120700 42800 6 Overhead =528210*B5/SUM($B$5:$C$5) 1=528210*C5/SUM($B$5:$C$5) 7 Selling and Admin Expenses 60000 102000 8 Product Margin =B3-SUM(B4:B7) =C3-SUM(C4:07) 9 10 Under ABC B300 T500 12 Sales Revenue =B3 =C3 13 Direct Material =C4 14 Direct Labor =B5 =C5 15 Overhead 16 Machining =200430*90500/153000 =200430*62500/153000 17 Setups =165880*77/377 =165880*300/377 18 Product Sustaining =101400*1/2 =101400*1/2 19 Selling and Admin Expenses 60000 102000 20 Product Margin =B12-SUM(B13:B19) =C12-SUM(C13:C19) 21 22 Comparison 23 B300 T500 24 Traditional =B8 =C8 25 ABC =B20 =C20 26 Difference =B24-B25 =C24-C25 -B4