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 1,768, 200 1,247,348 520,852 640,000 (119,148) $ Hi-Tek produced and sold 60,200 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. Additional information relating to the company's two product lines is shown below: B300 $ 400,800 $ 120,500 1500 $ 162,400 $ 42,600 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,200 163, 100 521,48 $ 1,247,348

Answer 1

Answers 1 Product Margin under Traditional Costing B300 [ Product Margin 358505 2 Product Margin under Activity Based costing T500 163106 Total 521611 B300 T500 -67418 Total 415652 Product Margin 483070

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost B300 T500 Total 563200 163100 5202891 1246589 640000 1886589 Total Traditional Costing System Amount % Amount % Direct Material 400800 71.2% 162400 28.8% DirectLabor 120500 73.9% 42600 26.1% Manufacturing Overheads 384395 73.9% 135894 26.1% Total Cost Assigned to Products 905695 340894 Selling and Administrative Expenses Total Cost Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System Amount % Amount 1 % Direct Cost Direct Material 400800 71.2% 162400 28.8% Direct Labor 120500 73.9% 42600 26.1% Advertisements (Traced) 57000 34.3% 109000 65.7% Indirect Cost Machining 121270 59.1% 84018 40.9% Batch setup 31160 20.2% 123000 79.8% Prodcut Sustainind 50400 50.0% 504001 50.0% Total Cost Assigned to Products 781130 571418 Cost Not asigned to the Products Selling and Administrative Expenses Others Total Cost 563200 163100 166000 205288 154160 100800 1352548 474000 60800 1826548

21 Working Notes B300 T500 Total Selling Price 40 Direct Material 400800 1 62400563200 Direct Labor 120500 42600 163100 Production in Units 602001 12600 72800 Manufacturing Overheads 521048 Advertisements (Traced) 109000 Selling and Administrative Expenses 640000 Maufacturing OH 521048 Estimated Labor Dollars Predetermined Overhead Rate 3.19 521048/163100 MOH Activity B300 T500 Total Machining 205288 90500 62700 153200 Setups 154160 76 3001376 Prodcut sustaining 1008001 1 1 Others 60800 521048 Traditional Costing System B300 L T500 Total sales 1264200 504000 1768200 Direct Material 400800 1 62400563200 Direct Labor 120500 42600 163100 Manufacturing Overheads 384395 135894 5202891 Total Manufacturing Cost 9056951 340894 1246589 Product Margin 358505 163106 521611

Base Activity Rate 153200 1.34 376 410.00 2 50400 Determination of Activity Rate Activty Pool Estimated OH Machining 205288 Batch setup 154160 Prodcut Sustaining 100800 Activity Based Costing System B300 sales 1264200 Direct Material 400800 Direct Labor 120500 Advertisements (Traced) 57000 Matching Activity Rate) 121270 Batch Setup (Activity *Rate) 31160 Prodcut Sustaining 50400 Total Cost 781130 Product Margin 483070 T500 Total 5040001768200 162400563200 426001 163100 109000 166000 840181 205288 123000 1541601 504001 100800 571418 1352548 -67418 415652