Question

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts--the 8300 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 $ 1,703,300 1,224.689 478.611 590,000 $ (111,389) HI-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 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: B300 $ 400.500 $ 120,300 T500 $ 162,700 $ 42,200 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,200 162,500 498,989 $1,224,689 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 $106,000 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: Manufacturing Overhead $ 203,889 133,200 101,600 60,300 $ 498,989 Activity B300T500 Total 90,600 62,700 153,300 333 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 260 NA NA Required: 1. Compute the product margins for the B300 and T500 under the company's traditional costing system. 2. Compute the product margins for B300 and T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3

Answer 1

Answers 1 Product Margin under Traditional Costing B300 L Product Margin 317879 2 Product Margin under Activity Based costing B300 Product Margin 426702 T500 160846 Total 478725 T500 -53791 Total 372911

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 400500 120300 369321 890121 % 71.1% 74.0% 74.0% Amount 162700 42200 129554 334454 % 28.9% 26.0% 26.0% 563200 162500 498875 1224575 590000 1814575

Total 563200 162500 166000 Quantitative Comparison of Acticity Based Cost Assignments B300 T500 Activty Based Costing System | Amount % Amount % Direct Cost Direct Material 400500 71.1% 162700 28.9% Direct Labor 120300 74.0% 42200 26.0% Advertisements (Traced) 60000 36.1% 106000 63.9% Indirect Cost Machining 120498 59.1% 83391 40.9% Batch setup 29200 21.9% 104000 78.1% Prodcut Sustainind 50800 50.0% 50800 50.0% Total Cost Assigned to Products 781298 549091 Cost Not asigned to the Products Selling and Administrative Expenses Others 203889 133200 101600 1330389 4240001 60300 Total Cost 1754389

Total Working Notes B300 T500 Selling Price 201 39 Direct Material 4005001 162700 Direct Labor 120300 42200 Production in Units 60400 12700 Manufacturing Overheads Advertisements (Traced) 60000 106000 Selling and Administrative Expenses Maufacturing OH 498989 Estimated Labor Dollars 162500 Predetermined Overhead Rate 3.074989898/162500 563200 162500 73100 498989 590000 MOH Activity B300 T500 Total 9 0600 62700 153300 73 2601 333 Machining Setups Prodcut sustaining Others 203889 133200 101600 60300 498989 sales Direct Material Direct Labor Manufacturing Overheads Total Manufacturing Cost Product Margin Traditional Costing System B300 T500 Total 1208000 495300 17033001 400500 162700 5 63200 120300 4 2200 162500 369321 1 29554498875 890121 334454 1224575 3178791 1608461 478725

Determination of Activity Rate Activty Pool Machining Batch setup Prodcut Sustaining Estimated OH 203889 133200 101600 Base 153300 333 2 Activity Rate 1.33 400.00 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 1208000 400500 120300 60000 120498 29200 50800 781298 426702 T500 Total 495300 1703300 162700 563200 422001 162500 106000 166000 83391 203889 104000 133200 50800 101600 549091 1330389 -53791 372911