Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the B3
ID: 2395923 • Letter: H
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 S 1,776,488 1,242.488 533,992 68e.eee $ (66,888) Hi-Tek produced and sold 60.,400 units of B300 at a price of $21 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. ? 300 Direct materials Direct labor Manufacturing overhead Cost of goods sold 488, 880 162,480 563,286 162,980 516,388 1,242,488 128,48 42, 58e 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 $108,000 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: Manufacturin Activit 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 T588 Total s 280,168 154, 148 181, 288 66,888 9,2 62,688 152,886 367 NA NA 516,388 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 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) 9% of %of Traditional Cost SystemExplanation / Answer
Answer 1. Calculation of Product Margin Under Traditional Costing System B300 T500 Total Sales in Units 60,400 12,700 SP per Unit 21 40 Sales in $ 1,268,400 508,000 1,776,400 Less: Costs Direct Materials 400,800 162,400 563,200 Direct Labor 120,400 42,500 162,900 Manufacturing Overhead 381,605 134,703 516,308 Total Maufacturing Cost 902,805 339,603 1,242,408 Product Margin 365,595 168,397 533,992 Predetermined Overhead Rate = $516,308 (Total MOH) / $162,900 (Total Direct Labour $) Predetermined Overhead Rate = 316.95% of DLC (Approx.) Answer 2. Calculation of Activity Rate Total cost Allocation Base Allocation Rate Machining 200,168 152,800 Mach. Hrs 1.31 per mach. Hr Setups 154,140 367 Setup Hrs 420.00 per setup hr. Product Sustaining 101,200 2 Production 50,600.00 per product Other 60,800 NA NA Total Overhead 516,308 Assigning Overhead Cost to Product Model Using ABC Method Activity Based Overhead Rate B300 T500 Cost Driver Incurred OH Allocated Cost Driver Incurred OH Allocated Machining 1.31 per mach. Hr 90,200 Mach. Hrs 118,162.00 62,600 Mach. Hrs 82,006.00 Setups 420.00 per setup hr. 77 Setup Hrs 32,340.00 290 Setup Hrs 121,800.00 Product Sustaining 50,600.00 per product 1 Production 50,600.00 1 Production 50,600.00 Total Overhead 201,102 254,406 Calculation of Product Margin Under ABC Costing B300 T500 Total Sales in Units 60,400 12,700 SP per Unit 21 40 Sales in $ 1,268,400 508,000 1,776,400 Less: Costs Direct Materials 400,800 162,400 563,200 Direct Labor 120,400 42,500 162,900 Advertising Costs 56,000 108,000 164,000 Indirect Costs: Machining 118,162 82,006 200,168 Setups 32,340 121,800 154,140 Product Sustaining 50,600 50,600 101,200 Total costs assigned to products 778,302 567,306 1,345,608 Product Margin 490,098 (59,306) 430,792 Answer 3. B300 T500 Total Amount Amount % of Total amount Amount % of Total amount Traditional Cost System Direct Materials 400,800 71.16% 162,400 28.84% 563,200 Direct Labor 120,400 73.91% 42,500 26.09% 162,900 Manufacturing Overhead 381,605 73.91% 134,703 26.09% 516,308 Total cost assigned to products 902,805 72.67% 339,603 27.33% 1,242,408 Selling & Admn. Exp. 600,000 Total Costs 1,842,408 B300 T500 Total Amount Amount % of Total amount Amount % of Total amount Activity Based Costing system Direct Materials 400,800 71.16% 162,400 28.84% 563,200 Direct Labor 120,400 73.91% 42,500 26.09% 162,900 Advertising Costs 56,000 34.15% 108,000 65.85% 164,000 Indirect Costs: Machining 118,162 59.03% 82,006 40.97% 200,168 Setups 32,340 20.98% 121,800 79.02% 154,140 Product Sustaining 50,600 50.00% 50,600 50.00% 101,200 Total costs assigned to products 778,302 57.84% 567,306 42.16% 1,345,608 Costs not assigned to products Selling & Admn. Exp. 436,000 Other Costs 60,800 Total Costs 1,842,408
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