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 1,644,000 1.232,792 411.208 590,000 (178,792) $ Hi-Tek produced and sold 60.000 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. 8300 $ 400,800 $ 120,100 T500 $ 162,900 $ 42,200 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563, 780 162.300 506,792 $ 1,232,792

Answer 1

Answers 1 Product Margin under Traditional Costing IB300 Product Margin 244388 2 Product Margin under Activity Based costing B300 Product Margin 362645 T500 167236 Total 411624 T500 -60137 Total 302508

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost B300 T500 Total | Traditional Costing System Direct Material DirectLabor Manufacturing Overheads Total Cost Assigned to Products Selling and Administrative Expenses Total Cost Amount 400800 120100 374712 895612 % 71.1% 74.0% 74.0% Amount 162900 42200 131664 336764 % 28.9% 26.0% 26.0% 563700 162300 506376 1232376 590000 1822376

Total 563700 162300 169000 Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System Amount % Amount % Direct Cost Direct Material 400800 71.1% 162900 28.9% Direct Labor 120100 74.0% 42200 26.0% Advertisements (Traced) 59000 34.9% 110000 65.1% Indirect Cost Machining 118555 59.1% 82137 40.9% Batch setup 28000 19.4% 116000 80.6% Prodcut Sustainind 50900 50.0% 50900 50.0% Total Cost Assigned to Products 777355 564137 Cost Not asigned to the Products Selling and Administrative Expenses Others Total Cost 200692 144000 101800 1341492 421000 60300 1762492

401 Working Notes B300 T500 Total Selling Price 191 Direct Material 4008001 162900 563700 Direct Labor 120100 42200 162300 Production in Units 60000 12600 72600 Manufacturing Overheads 506792 Advertisements (Traced) 59000 110000 Selling and Administrative Expenses 590000 Maufacturing OH 506792 Estimated Labor Dollars 162300 2 Predetermined Overhead Rate 3.12 506792/162300 MOHD Activity B300 T500 Total Machining 200692 9 0500 62700 153200 Setups 144000!! 701 2901360 Prodcut sustaining 101800 others 60300 506792 Direct Material Direct Labor Manufacturing Overheads Total Manufacturing Cost Product Margin Traditional Costing System R300 T500 Total 1140000 5040001 1644000 4008001 162900 563700 120100 42200 162300 374712 131664 5063761 8956121 3367641 1232376 2443881 167236 411624

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Estimated OH 200692 144000 101800 Base 153200 360 2 Activity Rate 1.31 400.00 50900 Activity Based Costing System sales Direct Material Direct Labor Advertisements (Traced) Matching Activity *Rate) Batch Setup (Activity *Rate) Prodcut Sustaining Total Cost Product Margin B300 1140000 400800 120100 59000 118555 28000 50900 777355 362645 T500 Total 504000 1644000 162900 563700 42200 162300 110000 169000 82137 200692 116000 144000 50900 101800 564137 1341492 -601371 302508