Question

Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle Subtle Em... Emphasis intense - XX A..A. EEEE. - - Hi-Tek Manufacturing, Inc. makes two types of industrial component parts-the 3300 and the 1500. An absorption costing income statement for the most recent period is shown HI-Tek Manufacturing Inc. Income Statement Cost of goods sold Gross margin Selling and administrative expenses et operating loss 1,264,161 Hi-Tek produced and sold 60 200 units of B300 at a price of $20 per unit and 12.700 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. T560 $ 460, 50 5162,100 $ 120,200 $ 42,00 Direct materials Direct labor manufacturing overhead Cost of goods sold Total $ 563,300 163, 528,063 $ 1,254,163 The company has created on activity based costing system to evaluate the profitability of its products. Hi Teks ABC implementation team concluded that $55.000 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. Activity Cost Pool (and Activity measure) Machining (machine hours) Setups (setup hours) Product-sustaining (number of products) Other (organization- staining costs) Total manufacturing overhead cost 156,01 len. $ 520,06) Required: 1 Compute the product margins for the 300 and T500 under the company's tramonal costing system 2. Compute the product marging for B300 and 500 under the activity based costing system 3. Prepare a quantitative comparison of the traditional and activity based on assignments (Cr)-

Answer 1

Part A

Predetermined overhead rate = Estimated total manufacturing overhead cost
Estimated total direct labor dollars = 528063/163000 = $3.24 per direct labor dollar

	B300	T500	Total
Sales revenue	1204000	508000	1712000
Direct materials	400500	162800	563300
Direct labor	120200	42800	163000
Manufacturing overhead applied (@ $3.24 per direct labor-dollar)	389448	138672	528120
Total manufacturing cost	910148	344272	1254420
Product margin	$293852	$163728	$457580

Part B

Activity Cost Pools	total cost	total activity	activity rate
machining	209473	152900	1.37
set ups	156090	363	430
product sustaining	101600	2	50800

	B300	T500	Total
Sales revenue	1204000	508000	1712000
Direct materials	400500	162800	563300
Direct labor	120200	42800	163000
machining	123437	86036	209473
set ups	31390	124700	156090
product sustaining	50800	50800	101600
Advertising expense	55000	100000	155000
Total manufacturing cost	781327	567136	1348463
Product margin	422673	(59136)`	363537

Part C

The quantitative comparison is as follows:

Traditional Cost System

	B300	%	T500	%	Total
Direct materials	400500	71.10%	162800	28.90%	563300
Direct labor	120200	73.74%	42800	26.26%	163000
Manufacturing overhead applied (@ $3.24 per direct labor-dollar)	389448	73.74%	138672	26.26%	528120
Total cost assigned to products	910148		344272		1254420
Selling and administrative expense					630000
Total cost					$1884420

Activity-Based Costing System

	B300	%	T500	%	Total
Direct costs:
Direct materials	400500	71.10%	162800	28.90%	563300
Direct labor	120200	73.74%	42800	26.26%	163000
Advertising expense	55000	35.48%	100000	64.52%	155000
Indirect costs
machining	123437	58.93%	86036	41.07%	209473
set ups	31390	20.11%	124700	79.89%	156090
product sustaining	50800	50.00%	50800	50.00%	101600
Total cost assigned to products	781327		567136		1348463
Costs not assigned to products:
Selling and administrative					475000
other					60900
Total cost					$1884363

630000-155000 = 475000