Question

Chapter 7 Homework Help 17 Cost of goods sold Cross margin Selling and administrative expensen Net operating loss $ 1.770.300 1,218,568 551,732 600,000 48,268) points Hi-Tek produced and sold 60,300 units of B300 at a price of $21 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. Adenal information relating to the company's two product lines is shown below: 800 100 T500 $ 162,000 $ 42,200 Direct materiale Direct labor Manufacturing overhead Coat of goods sold Total $ 562,800 162,300 493,468 $1,218,568 References The company has created an activity based costing system to evaluate the profitability of its products. Hi Tek's ABC implementation team concluded that $55,000 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: 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 Manufacturing Overhead $ 205,288 126,280 101,200 60, 700 $493,468 Activity B300 T500 Total 90,300 62,900 153,200 77 210 287 1 NA NA NA 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.

Answer 1

Calculation of product margin under traditional system
	B300	T500
Sales Revenue	1,266,300.00	504,000.00
Direct Material	400,800.00	162,000.00
Direct Labor	120,100.00	42,200.00
Overhead	365,160.24	128,307.76
Selling and Admin Expense	55,000.00	105,000.00
Product Margin	325,239.76	66,492.24
Under ABC
	B300	T500
Sales Revenue	1,266,300.00	504,000.00
Direct Material	400,800.00	162,000.00
Direct Labor	120,100.00	42,200.00
Overhead
Machining	121002	84286
Setups	33880	92400
Product Sustaining	50600	50600
Selling and Admin Expense	55,000.00	105,000.00
Product Margin	484,918.00	-32,486.00
Comparison
	B300	T500
Traditional	325,239.76	66,492.24
ABC	484,918.00	-32,486.00
Difference	-159,678.24	98,978.24