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 1,639,000 1,213,070 425,930 600,000 (174,070) $ Hi-Tek produced and sold 60,400 units of B300 at a price of $19 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 $ 400,900 $ 120,700 $ $ T500 162,200 42,400 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563, 100 163, 100 486,870 $ 1,213,070 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 and $100,000 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:

Answer 1

Answers 1 Product Margin under Traditional Costing B300 / Product Margin 265107 2 Product Margin under Activity Based costing B300 L Product Margin 369550 T500 1 60024 Total 425131 T500 -41320 Total 328230

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost B300 T500 Total Traditional Costing System Amount % Amount % Direct Material 400900 71.2% 162200 28.8% 563100 DirectLabor 120700 74.0% 42400 26.0% Manufacturing Overheads 360893 74.0% 126776 26.0% 487669 Total Cost Assigned to Products 882493 331376 1213869 Selling and Administrative Expenses 6000001 Total Cost 1813869| Quantitative Comparison of Acticity Based Cost Assignments B300 | T500 Total Activty Based Costing System Amount % Amount | % Direct Cost Direct Material 400900 71.2% 162200 28.8% 563100 Direct Labor 120700 74.0% 42400 26.0% 163100 Advertisements (Traced) 58000 36.7% 100000 63.3%) 158000 Indirect Cost Machining 1173901 59.1% 81120 40.9% 198510 Batch setup 30660 24.1% 96600 75.9% 127260 Prodcut Sustainind 50400 50.0% 50400 50.0% 100800 Total Cost Assigned to Products 778050 532720 1310770 Cost Not asigned to the Products Selling and Administrative Expenses 442000 Others 60300 Total Cost 17527701 carc Mozart Mucir Inc Munoz Snortina R Braun Dre Determined Deluy Standard

Working Notes B300 T500 Total Selling Price 19 39 Direct Material 400900 162200 563100 Direct Labor 1207001 42400 163100 Production in Units 604001 12600 73000 Manufacturing Overheads 486870 Advertisements (Traced) 58000 100000 Selling and Administrative Expenses 600000 Maufacturing OH 486870 Estimated Labor Dollars 163100 Predetermined Overhead Rate 2.99 4868701/163100 MOH Activity B300 T500 Total Machining 198510 903001 62400 152700 Setups 127260 731 230303 Prodcut sustaining 100800 Others 60300 4868701 Traditional Costing System B300 T500 Total sales 11476001 491400 1639000 Direct Material 400900 1622001 563100 Direct Labor 120700 42400 163100 Manufacturing Overheads (Rate *labour) 360893 126776 487669 Total Manufacturing Cost 882493 3313761 1213869 Product Margin 265107 160024 425131

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Activity Based Costing System Estimated OH 198510 127260 100800 Base 152700 303 2 Activity Rate 1.30 420.00 50400.00 sales Direct Material Direct Labor Advertisements (Traced) Matching Activity *Rate) Batch Setup (Activity *Rate) Prodcut Sustaining Total Cost Product Margin B300 1147600 400900 120700 58000 117390 30660 504001 778050 369550 T500 Total 491400 1639000 162200 563100 42400 163100 100000 158000 81120 198510 96600 127260 504001 100800 532720 1310770 -41320 328230