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 Sales $ Hi-Tek Manufacturing Inc. Income Statement Cost of goods sold Gros margin Selling and administrative expenses Net operating loss 1.645.900 1.261.053 384.847 610.000 ences Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,600 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, 600 $ 120,500 1500 $ 162.600 $ 42.500 $ Direct materials Direct labor Kanufacturing overhead Cost of goods sold Total 563.200 163.000 534,863 1. 261.053 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 $109,000 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 $ 212. 263 161, 100 100.600 60.900 Activity 83001500Total 9 0.200 62.500 152.700 Activity Cost Pool (and activity Messure) Machining machine hours) Setup (setup hours) Product-sustaining tumber of products) Other (Organization-staining costs) Total manufacturing overhead cost 534053

Answer 1

1) Total estimated overhead costs Total direct labor dollars Predetermined overhead rate $534,853 $163,000 328.13% of direct labor cost ($534853/ $163000 = 328.13%) B300 $1,141,900 T500 $504,000 (60100 units x $19; 12600 units x $40] Sales Less: Direct materials Driect labor Manufacturing overheads Product Margin using traditional costing $400,600 -$120,500 -$395,397 $225,403 $162,600 [Given] $42,500 (Given] $139,456 ($120500 x 328.13%; $42500 x 328.13%] $159,444

2) Activity Activity Volume (2) Estimated Overheads (1) $212,253 $161,100 $100,600 152 700 Overhead Rate (1) / (2) $1.39 ($212253 / 152700 machine-hours] $450.00 ($161100 / 358 setup hours) $50,300.00 ($100600 / 2 products] Machining Setting up Product-Sust. 358 2 ou Machining Setting up Product-Sust. Total Mfg. OHs assigned B300 $125,378 $35,100 $50,300 $210,778 T500 $86,875 [90200 hours x $1.39; 62500 hours x $1.39] $126,000 [78 setups x $450.00; 280 setups x $450.00] $50,300 [1 product x $50300.00; 1 product x $50300.00) $263,175 B300 $1,141,900 T500 $504,000 [60100 units x $19; 12600 units x $40] Therefore, Sales Less: Direct materials Driect labor Manufacturing overheads Product Margin using Activity costing $400,600 $120,500 $210,778 $410,022 $162,600 $42,500 $263,175 [As calculated above] $35,725

T500 Amount Total Amount % B300 Amount % Traditional Costing System: Direct materials $400,600 71.1% Driect labor $120,500 73.9% Manufacturing overheads $395,397 73.9% Total Costs assigned $916,497 72.7% Costs not assigned to products: Selling & admin. Expense Total Costs $162,600 $42,500 $139,456 28.9% 26.1% 26.1% $563,200 $163,000 $534,853 [Ref: Requirement-1] $1,261,053 $610,000 [Given] $1,871,053 % T500 Amount $162,600 $42,500 Total Amount $563,200 $163,000 28.9% 26.1% Activity Based Costing System B300 Direct Costs: Amount Direct materials $400,600 71.1% Driect labor $120,500 73.9% Indirect Costs: Machining $125,378 59.1% Setting up $35,100 21.8% Product-Sust. $50,300 50.0% Total Costs assigned $731,878 61.0% Costs not assigned to products: Other (Organization sustaining costs) Selling & administrative expenses Total Costs $86,875 $126,000 $50,300 $468,275 40.9% 78.2% 50.0% 39.0% $212,253 (Ref: Requirement-2] $161,100 [Ref: Requirement-2] $100,600 [Ref: Requirement-2] $1,200,153 $60,900 $534853 - ($212253 + $161100 + $100600)] $610,000 (Given] $1,871,053 ($1200153 + $60900 + $610000]