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 below Hi-Tek Manufacturing Inc. Income Statement 1,774,100 1,228,490 545,610 620,000 (74,390) Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ $ Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,800 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: взоо Total $ в30 T500 S 162,200 42,000 $ 400,600 $ 120,100 Direct materials Direct labor Manufacturing overhead 562,800 162,100 503,590 $ 1,228,490 Cost of goods sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $56,000 and $107,000 of the company's advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the sell ing 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 T500 Manufacturing Overhead S 208,760 вз0 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 Total 62,500 91,000 153,500 323 132,430 101,600 60,800 S 503,590 73 250 1 1 NA NA. NA

Answer 1

Answers 1 Product Margin under Traditional Costing B300 Product Margin 367889 2 Product Margin under Activity Based costing IB300 Product Margin 480910 T500 177180 Total 545069 T500 -37500 Total 443410

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 400600 120100 373511 894211 % 71.2% 74.1% 74.1% Amount 162200 42000 130620 334820 % 28.8% 25.9% 25.9% 562800 162100 504131 1229031 620000 1849031

Total 562800 162100 163000 Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System Amount % | Amount % Direct Cost Direct Material 400600 71.2% 162200 28.8% Direct Labor 120100 74.1% 42000 25.9% Advertisements (Traced) 56000 34.4% 107000 65.6% Indirect Cost Machining 123760 59.3% 85000 40.7% Batch setup 29930 22.6% 102500 77.4% Prodcut Sustainind 50800 50.0% 50800 50.0% Total Cost Assigned to Products 781190 549500 Cost Not asigned to the Products Selling and Administrative Expenses Others Total Cost 208760 132430 101600 1330690 457000 60800 1787690

Working Notes B300 L T500 Total Selling Price 21 40|| Direct Material 400600 162200 5 62800 Direct Labor 120100 42000 1621001 Production in Units 60100 12800 72900 Manufacturing Overheads 503590 Advertisements (Traced) 56000 107000 Selling and Administrative Expenses 620000 Maufacturing OH 503590 Estimated Labor Dollars 162100|| .11 Predetermined Overhead Rate 3.11 5035908/162100 MOH Activity B300 T500 Total Machining 208760 91000 62500 153500 Setups 132430 73 250 323 Prodcut sustaining 101600 Others 60800 503590 Traditional Costing System B300 T500 Total sales 1262100 512000 1 774100 Direct Material 400600 1 62200 5 62800 Direct Labor 1201001 42000 162100 Manufacturing Overheads 373511 1306200 504131 Total Manufacturing Cost 894211 334820 1229031 Product Margin 367889 177180 545069

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Base 153500 Estimated OH 208760 132430 101600 Activity Rate 1.36 410.00 50800 323 - 2 Activity Based Costing System T500 sales Direct Material Direct Labor Advertisements (Traced) Matching Activity *Rate) Batch Setup (Activity * Rate) Prodcut Sustaining Total Cost Product Margin B300 1262100 400600 120100 56000 123760 29930 50800 781190 480910 Total 1774100 162200 5628001 42000 162100 107000 163000 85000 208760 1025001 132430 50800 101600 549500 1330690 -37500 443410