Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2417776 • 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 below: Thank you.
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 below: Thank you.
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 below: Hi-Tek Manufacturing Indc. Income Statement Sales Cost of goods sold $1,697,300 1,233,295 Gross margin Selling and administrative expenses 464,005 600,000 Net operating loss $ (135,995) Hi-Tek produced and sold 60,100 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 T500 Total Direct materials Direct labor Manufacturing overhead $400,500 162,700 $ 563,200 163,500 506,595 $120,900 42,600 Cost of goods sold $ 1,233,295 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 $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: Activity Manufacturing Overheacd Activity Cost Pool (and Activity Measure) B300 T500 TotalExplanation / Answer
Traditional costing
product margin = sales - assigned cost
B300 = $305,999
T500 = $158,006
Activity - Based costing system
B-300 Product margin =1,202,000 - 781,060 = $420,940
T-500 Product margin =495,300 -553,035= - 57,735
b-300 t-500 total direct materials 400,500(44.6%) 162,700(48.2%) 563,200 Direct labor 120,900(13.49%) 42,600(12.6%) 163,500 Manufacturing ovehead 374,601(41.8%) 131,994(39.1%) 506,595 total cost assigned 896,001 337,294 1,233,295 Selling and administrative 600,000Related Questions
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