Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B3

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 $ 1,716,000 Cost of goods sold 1,249,984 Gross margin 466,016 Selling and administrative expenses 600,000 Net operating loss $ (133,984 ) 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 $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:
B300 T500 Total Direct materials $ 400,300 $ 162,100 $ 562,400 Direct labor $ 120,900 $ 42,900 163,800 Manufacturing overhead 523,784 Cost of goods sold $ 1,249,984 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 $109,000 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 Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 208,624 90,800 62,600 153,400 Setups (setup hours) 152,460 73 290 363 Product-sustaining (number of products) 101,800 1 1 2 Other (organization-sustaining costs) 60,900 NA NA NA Total manufacturing overhead cost $ 523,784

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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 $ 1,716,000 Cost of goods sold 1,249,984 Gross margin 466,016 Selling and administrative expenses 600,000 Net operating loss $ (133,984 ) 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 $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:
B300 T500 Total Direct materials $ 400,300 $ 162,100 $ 562,400 Direct labor $ 120,900 $ 42,900 163,800 Manufacturing overhead 523,784 Cost of goods sold $ 1,249,984 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 $109,000 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 Activity Activity Cost Pool (and Activity Measure) B300 T500 Total Machining (machine-hours) $ 208,624 90,800 62,600 153,400 Setups (setup hours) 152,460 73 290 363 Product-sustaining (number of products) 101,800 1 1 2 Other (organization-sustaining costs) 60,900 NA NA NA Total manufacturing overhead cost $ 523,784

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Check my work mode:This shows what ls correct or Incorrect for the FlightData-04.txt Type here to search

Explanation / Answer

Since, we have not been provided with the details for activity based costing, we will have to calculate the product margins under ABC.

_____

Step 1: Calculate Activity Rates

The activity rates are calculated as below:

Machining = Total Cost/Total Machine Hours = 208,624/153,400 = $1.36 per machine hour

Setup = Total Cost/Total Setup Hours = 152,460/363 = $420 per setup hour

Product Sustaining = Total Cost/Number of Products = 101,800/2 = $50,900

____

Step 2: Calculate Product Margins

The product margins are calculated as below:

____

Step 2: Prepare Quantitative Comparison

The quantitative comparison is prepared as below:

B300 T500 Total Sales 1,208,000 508,000 1,716,000 Cost of Goods Sold Direct Material 400,300 162,100 562,400 Direct Labor 120,900 42,900 163,800 Machining 123,488 85,136 208,624 Setups 30,660 121,800 152,460 Product Sustaining 50,900 50,900 101,800 Advertising Expenses 60,000 109,000 169,000 Cost of Goods Sold 786,248 571,836 1,358,084 Product Margin $421,752 -$63,836 $357,916

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.