Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,

Question

Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $50,000 and $100,000 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

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))

Hi-Tek Manufacturing Inc.
Income Statement   Sales $ 2,100,000   Cost of goods sold 1,600,000   Gross margin 500,000   Selling and administrative expenses 550,000   Net operating loss $ (50,000)

Explanation / Answer

1)

2)

3)

Traditional Costing Amounts in $'s Products Per unit B300 Per unit T500 No of units sold 70000 17500 Sales 20 1400000 40 700000 Cost of goods sold Direct Material 6.23 436300 14.38 251700 Direct labour 2.86 200000 5.94 104000 Manufacturing OH-Note 5.71 400000 11.89 208000.00 Total 14.80 1036300.00 32.21 563700.00 Product margin 5.20 363700.00 7.79 136300.00 Note Total B300 T500 Total Manufacturing OH 608000 Total direct labor dollar 304000 200000 104000 OH/DL dollar 2.00 Allocated OH 608000 400000 208000

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