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 $ 1,651,600 1,237,474 414,126 590,000 $ (175,874) 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 $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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400,200 $ 162,200 $ 562,400 $ 120,200 $ 42,800 163,000 512,074 $ 1,237, 474 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $102,000 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 $ 210,864 140,610 100,400 60,200 $ 512,074 Activity B300 T500 Total 90,300 62,500 152,800 77 250 327 1 1 1 2 NA NA NA < Prev Ranufacturing overhead cost 6 of 6 RB20 $ 512,604 RE Propierea unitate comparson of the vadonal and the cost Required 1 Compute the product margins for the 1300 and 500 under the company stronal conting site 2. Compute the product margins for 300 and 500 under the based on 3. Prepare a quantitative comparison of the traditional and activity based cost assignments Cathewwertetal be Required: 1 Compute the product margins for the 3300 and 1500 under the com 2. Compute the product margins for 300 and 1500 under the activity 2. Prepare a quantitate comparison of the traditional and activity base para gerture comparison of the actors and animats Rounder paces de plante Complete this question by your news in the tabs Complete this question by entering your answer the Required 1 Red 2 Required Compute the product margins for the 100 and 500 under the company traditional tour Intermediate clations to decimal places and swers to the newest whole dolar) Required 1 rokered Required 3300 1500 Products 5 Compute the product marging for 1000 and T500 under the activity be indicated by a minussige Round your mediat calculation to de BT500 To Product margin 15 Rad 2) < Required Regul < Pur

REQUIRED:

1. Compute the product margins for the B300 and T500 under the company's traditional costing system.

2. Compute the product margins for the B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Answer 1

Answer to Part 1.: Computation of Product Margins Using Traditional Approach: B300 T500 Total 1,147,600 504,000 1,651,600 Sales Costs: Direct Materials Direct Labor Manufacturing Overhead Applied Total Manufacturing Cost 400,200 120,200 377,615 898,015 162,200 42,800 134,459 339,459 562,400 163,000 512,074 1,237,474 Product Margin 249,585 164,541 414,126 Calculation: Predetermined Overhead Rate = Estimated Total Manufacturing Overhead Cost / Estimated Total DLH Predetermined Overhead Rate = $512,074 / $163,000 * 100 Predetermined Overhead Rate = 314.1558%

Answer to Part 2 Estimated Estimated Overhead Cost Activity 210,864 152,800 MH Activity Cost Pool Activity Rate Machining Machine Hours) 1.38 per MH Setups (Setup Hours) Product Sustaining 140,610 100,400 327 Setups 2 430 per Setup Hours 50,200 per Product Calculation of Product Margins using Activity Based Costing System: B300 T500 Total 1,147,600 504,000 1,651,600 Sales Costs: Direct Materials Direct Labor Advertising Machining Setups Product Sustaining Total Costs 400,200 120,200 60,000 124,614 33,110 50,200 788,324 162,200 42,800 102,000 86,250 107,500 50,200 550,950 562,400 163,000 162,000 210,864 140,610 100,400 1,339,274 Product Margin 359,276 -46,950 312,326

Total Answer to Part 3. B300 % of Total Amount Amount T500 % of Total Amount Amount Amount Traditional Cost System: Direct Materials Direct Labor Manufacturing Overhead Total Costs assigned to Products 400,200 120,200 377,615 898,015 71.16% 73.74% 73.74% 162,200 42,800 134,459 339,459 28.84% 26.26% 26.26% 562,400 163,000 512,074 1,237,474

Total B300 % of Total Amount T500 % of Total Amount Amount Amount Amount 400,200 120,200 60,000 71.16% 73.74% 37.04% 162,200 42,800 102,000 28.84% 26.26% 62.96% 562,400 163,000 162,000 Activity Based Costing System: Direct Costs: Direct Materials Direct Labor Advertising Expense Indirect Costs: Supporting Direct Labor Batch Setups Product Sustaining Total Cost assigned to Products Cost not assigned to Products: Other Total Cost 124,614 33,110 50,200 788,324 59.10% 23.55% 50.00% 86,250 107,500 50,200 550,950 40.90% 76.45% 50.00% 210,864 140,610 100,400 1,339,274 60,200 1,399,474