Hi-Tek Manufacturing Inc. makes two types of industrial component parts-the B300

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: Hi-Tek Manufacturing Indc. Income Statement Sales Cost of goods sold $1,645,900 1,253,878 Gross margin Selling and administrative expenses 392,022 620,000 Net operating loss $(227,978) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,600 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 $400,600 163,000 $ 563,600 163,800 526,478 $120,900 42,900 Cost of goods sold $ 1,253,878

Explanation / Answer

Answer:

Under the traditional direct labor-dollar based costing system, manufacturing overhead is applied to products using the overhead rate computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost/ Estimated total direct labor dollars

= $526478/$163800= $3.214151404 per DL$

The product margins using the traditional approach would be computed as follows:

Answer:2 The first step is to determine the activity rates:

*The Other activity cost pool is not shown above because it includes organization-sustaining and idle capacity costs tha assigned to products.

Under the activity-based costing system, the product margins would be computed as follows:

Answer:3

Particulars B300 T500 Total Sales 1141900 504000 1645900 Direct material 400600 163000 563600 Direct labor 120900 42900 163800 Manufacturing overhead applied @ $3.214151404 per DL $ 388590.9 137887.1 526478 Total manufacturing cost 910090.9 343787.1 1253878 Product Margin 231809 160213 392022

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