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 Cost of goods sold Oross margin Selling and administrative expenses Net operating loss $ 1,635, 200 1,235,307 399,893 600,000 (200,107) Hi-Tek produced and sold 60,200 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: B300 401,000 T500 Total Direct materials Direct labor Manufacturing overhead Cost of goods sold 162,500 $563,500 162,300 509,507 1,235, 307 $ 120,100 42,200 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 and $105,000 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 alsco distributed the company's manufacturing overhead to four activities as shown below:

Explanation / Answer

B300 T500 Total Units 60200 12600 Sales Price 19.00 39.00 Direct Material 401000 162500 563500 Total Manufacturing OH 509507 Direct Labor 120100 42200 162300 Total Direct Labor Dollars 162300 Manufacturing OH 509507 Overhead Per Dollars 3.14 Cost of Goods Sold 1235307 1 B300 T500 Sales Price 19.00 39.00 Less: Direct Material 6.66 12.90 Less: Direct Labor 2.00 3.35 Less: Maufacturing OH 6.26 10.51 (DL Dollars* OHRate) Product Margin 4.08 12.24 16.32 2 B300 T500 Activity Pools Amt B300 T500 Total Per Driver Sales Price 19.00 39.00 Machining 201347 91000 62700 153700 1.31 Less: Direct Material 6.66 12.90 Setups 146160 78 270 348 420 Less: Direct Labor 2.00 3.35 Product Sustaining 101400 1 1 2 50,700 Less: Maufacturing OH 3.37 19.54 From Right Side Other 60600 NA NA NA Product Margin 6.98 3.21 Total M OH 509507 Allocation: B300 T500 Machining 119210 82137 (Activity Driver* Rate) Setups 32760 113400 (Activity Driver* Rate) Product Sustaining 50700 50700 (Activity Driver* Rate) Total M OH 202670 246237 Units 60200 12600 B300 T500 Manufacturing OH 3.37 19.54 60200 12600 3 B300 T500 Total Traditional Cost System Amount % Amount % Amount Direct Material 4,01,000 44.6% 1,62,500 48.2% 5,63,500 Direct Labor 1,20,100 13.4% 42,200 12.5% 1,62,300 Manufacturing OH 3,77,029 42.0% 1,32,478 39.3% 5,09,507 Total Cost assigned to products 8,98,129 100.0% 3,37,178 100.0% 12,35,307 Activity Based Costing Amount % Amount % Amount Direct Costs: Direct Material 4,01,000 55.4% 1,62,500 36.0% 5,63,500 Direct Labor 1,20,100 16.6% 42,200 9.4% 1,62,300 Indirect Costs: Machining 1,19,210 16.5% 82,137 18.2% 2,01,347 Setups 32,760 4.5% 1,13,400 25.1% 1,46,160 Product Sustaining 50,700 7.0% 50,700 11.2% 1,01,400 Total Cost assigned to products 7,23,770 100.0% 4,50,937 100.0% 11,74,707 Costs not assigned to products: Others 60600 Total Cost 12,35,307 Note: Rounding off has not been done

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