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 |
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Sales | $ | 1,712,000 | |
Cost of goods sold | 1,216,105 | ||
Gross margin | 495,895 | ||
Selling and administrative expenses | 640,000 | ||
Net operating loss | $ | (144,105 | ) |
Hi-Tek produced and sold 60,400 units of B300 at a price of $20 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 | T500 | Total | ||||
Direct materials | $ | 400,200 | $ | 162,200 | $ | 562,400 |
Direct labor | $ | 120,200 | $ | 42,600 | 162,800 | |
Manufacturing overhead | 490,905 | |||||
Cost of goods sold | $ | 1,216,105 | ||||
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 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:
Manufacturing Overhead |
Activity | |||||
Activity Cost Pool (and Activity Measure) | B300 | T500 | Total | |||
Machining (machine-hours) | $ | 213,365 | 90,800 | 62,700 | 153,500 | |
Setups (setup hours) | 116,440 | 74 | 210 | 284 | ||
Product-sustaining (number of products) | 101,000 | 1 | 1 | 2 | ||
Other (organization-sustaining costs) | 60,100 | NA | NA | NA | ||
Total manufacturing overhead cost | $ | 490,905 | ||||
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.
Total Manufacturing OH | 490905 | |||||||||
Total Direct Labor Dollars | 162800 | |||||||||
Overhead Per DL $ | 3.015 | |||||||||
B300 | T500 | |||||||||
B300 | T500 | Direct Labor | 120200 | 42600 | ||||||
Sales Price | 20.00 | 40.00 | Allocated MOH | 362450 | 128455 | (DL $*OH rate) | ||||
Less: Direct Material | 6.63 | 12.87 | Units | 60400 | 12600 | |||||
Less: Direct Labor | 1.99 | 3.38 | Allocated DL | 6.00 | 10.19 | |||||
Less: Maufacturing OH | 6.00 | 10.19 | ||||||||
Product Margin | 5.38 | 13.55 | ||||||||
B300 | T500 | Activity Pools | Amt | B300 | T500 | Total | Per Driver | |||
Sales Price | 20.00 | 40.00 | Machining | 2,13,365 | 90,800 | 62,700 | 1,53,500 | 1.39 | ||
Less: Direct Material | 6.63 | 12.87 | Setups | 1,16,440 | 74 | 210 | 284 | 410.00 | ||
Less: Direct Labor | 1.99 | 3.38 | Product Sustaining | 1,01,000 | 1 | 1 | 2 | 50,500.00 | ||
Less: Maufacturing OH | 3.43 | 17.76 | From Right Side | Other | 60,100 | NA | NA | NA | ||
Product Margin | 7.96 | 5.99 | Total M OH | 4,90,905 | ||||||
Allocation: | B300 | T500 | ||||||||
Machining | 126212 | 87153 | (Activity Driver* Rate) | |||||||
Setups | 30340 | 86100 | (Activity Driver* Rate) | |||||||
Product Sustaining | 50500 | 50500 | (Activity Driver* Rate) | |||||||
Total M OH | 207052 | 223753 | ||||||||
Units | 60400 | 12600 | ||||||||
B300 | T500 | Manufacturing OH | 3.43 | 17.76 | ||||||
60400 | 12600 | |||||||||
B300 | T500 | Total | ||||||||
Traditional Cost System | Amount | % | Amount | % | Amount | |||||
Direct Material | 4,00,200 | 45.3% | 1,62,200 | 48.7% | 5,62,400 | |||||
Direct Labor | 1,20,200 | 13.6% | 42,600 | 12.8% | 1,62,800 | |||||
Manufacturing OH | 3,62,450 | 41.1% | 1,28,455 | 38.5% | 4,90,905 | |||||
Total Cost assigned to products | 8,82,850 | 100.0% | 3,33,255 | 100.0% | 12,16,105 | |||||
Activity Based Costing | Amount | % | Amount | % | Amount | |||||
Direct Costs: | ||||||||||
Direct Material | 4,00,200 | 55.0% | 1,62,200 | 37.8% | 5,62,400 | |||||
Direct Labor | 1,20,200 | 16.5% | 42,600 | 9.9% | 1,62,800 | |||||
Indirect Costs: | ||||||||||
Machining | 1,26,212 | 17.3% | 87,153 | 20.3% | 2,13,365 | |||||
Setups | 30,340 | 4.2% | 86,100 | 20.1% | 1,16,440 | |||||
Product Sustaining | 50,500 | 6.9% | 50,500 | 11.8% | 1,01,000 | |||||
Total Cost assigned to products | 7,27,452 | 100.0% | 4,28,553 | 100.0% | 11,56,005 | |||||
Costs not assigned to products: | ||||||||||
Others | 60100 | |||||||||
Total Cost | 12,16,105 |
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 $ 1,645,700 Cost of goods sold 1,232,603 Gross margin 413,097 Selling and administrative expenses 610,000 Net operating loss $ (196,903 ) Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,500 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 $ 1,712,000 Cost of goods sold 1,239,003 Gross margin 472,997 Selling and administrative expenses 610,000 Net operating loss $ (137,003 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 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 $ 1,693,400 Cost of goods sold 1,255,186 Gross margin 438,214 Selling and administrative expenses 570,000 Net operating loss $ (131,786 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,763,400 1,219,880 543, 520 560,000 (16,480) $ 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 $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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,710,000 1,254,560 455,440 630,000 (174,560) $ Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $40 per unit. The...
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 $ 1,772,400 1, 248,128 524,272 610,000 $ (85,728) 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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,716,000 1,227,300 488,700 590,000 $ (101,300) 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 $40 per unit. The...
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 $ 1,712,000 1,240,051 471.949 610,000 (138,051) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 per unit. The company's...
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...
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....