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 Gross margin Selling and administrative expenses Net operating loss $ 1,718,000 1,231,442 486,558 550,000 $ (63,442) Hi-Tek produced and sold 60,500 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 Direct labor Manufacturing overhead Cost of goods sold $ 400,900 162,800 $563,700 162,800 504,942 1,231,442 120,700 42,100 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $104,000 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:

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Overhead Allocation - Traditional Costing System Particulars B300 T500 Total Estimated annual Production (In units) 60500 12700 Direct Labor Cost $120,700 $42,100 $162,800 Overhead Cost Allocation basis direct labour dollar (Overhead / Total direct labor dollar * Labor dollar of model) $374,364 $130,578 $504,942 Manufacturing overhead cost per unit (Allocated Overhead / Nos of units) $6.19 $10.28

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