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 $ 1,633,300 1,238,378 394,922 590,000 $ (195,078) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,600 units of T500 at a price of $39 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. 300 $ 400,600 $ 120,000 Direct materials Direet labor Manufacturing overhead Cost of goods sold 1500 Total $ 162,600 $ 563,200 $42,200 162,200 512,978 $ 1,238,378 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 and $103,000 of the company's advertising expenses could be directly traced to 3300 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:

Answer 1

Answers 1 Product Margin under Traditional Costing B300 Product Margin 242100 2 Product Margin under Activity Based costing B300 Product Margin 356592 T500 153248 Total 395348 T500 -62270 Total 294322

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 % 400600171.1% 120000 74.0% 379200 74.0% 899800 Amount 162600 42200 133352 338152 % 28.9% 26.0% 26.0% 563200 1622001 512552 1237952 5900001 1827952 Total 563200 162200 161000 Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System Amount % Amount % Direct Cost Direct Material 400600 71.1% 162600 28.9% Direct Labor 120000 74.0% 42200 26.0% Advertisements (Traced) 58000 36.0% 103000 6 4.0% Indirect Cost Machining 125378 58.9% 87570 41.1% Batch setup 30530 22.1% 107500 77.9% Prodcut Sustainind 50800 50.0% 50800 50.0% Total Cost Assigned to Products 785308 553670 Cost Not asigned to the Products Selling and Administrative Expenses Others Total Cost 212948 138030 101600 13389781 4290001 604001 1767978

Soz Working Notes B300 L T500 Total Selling Price 191 391 Direct Material 4006001 1626001 563200 Direct Labor 120000 42200 162200 Production in Units 60100 126001 72700 Manufacturing Overheads 512978 Advertisements (Traced) 58000 103000 Selling and Administrative Expenses 590000 Maufacturing OH 512978 Estimated Labor Dollars 162200 6 Predetermined Overhead Rate 3.16 512978/162200 MOH Activity B300 1 T500 Total Machining 212948 9 0200 63000|153200 Setups 1380301 7 12501 321 Prodcut sustaining 101600 1 1 2 Others 512978 Traditional Costing System B300 T500 Total sales 1141900 4 914001633300 Direct Material 400600 1 62600563200 Direct Labor 120000 42200 162200 Manufacturing Overheads 379200 133352 512552 Total Manufacturing Cost 899800 338152 1237952 Product Margin 2421001 153248 395348

Activity Rate Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining 1.39 Estimated OH 212948 138030 101600 Base 153200 321 2 430.00 50800 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 1141900 400600 120000 58000 125378 30530 50800 785308 356592 T500 Total 491400 1633300 162600 563200 42200 162200 103000 161000 87570 212948 107500 138030 50800 101600 553670 1338978 -62270 294322