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 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 $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 $57,000 and $106,000 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

Compute the product margins for the B300 and T500 under the company’s traditional costing system.(Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)

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) and other answers to nearest whole dollar amounts.)

      

     

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:

Explanation / Answer

-112441

The quantitative comparison of traditional & activity based cost shows that the product which is profitable in the traditional cost is actually not profitable in the activity based costing

B300 T500 Units 60200 12600 Price Unit 19 40 Total revenue 1143800 504000 Cost Material 400400 162700 Labor 120900 42100 Overhead 342314 150836 Total cost 863614 355636 Total margin 280186 148364 B300 T500 Units 60200 12600 Price Unit 19 40 Total revenue 1143800 504000 Cost Material 400400 162700 Labor 120900 42100 Overhead 342314 150836   Machining (machine-hours) 122415 84105   Setups (setup hours) 29200 96000   Product-sustaining (number of products) 50500 50500   Other (organization-sustaining costs) 30200 30200 Total cost 1095929 616441 Total margin 47871

-112441

The quantitative comparison of traditional & activity based cost shows that the product which is profitable in the traditional cost is actually not profitable in the activity based costing

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.