Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2492737 • 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:
Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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:
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $60,000 and $101,000 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:
Hi-Tek Manufacturing Inc.Income Statement Sales $ 1,651,800 Cost of goods sold 1,218,220 Gross margin 433,580 Selling and administrative expenses 590,000 Net operating loss $ (156,420)
Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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 $ 400,000 $ 162,700 $ 562,700 Direct labor $ 120,100 $ 42,200 162,300 Manufacturing overhead 493,220 Cost of goods sold $ 1,218,220The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $60,000 and $101,000 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
Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 203,490 90,700 62,300 153,000 Setups (setup hours) 128,330 73 240 313 Product-sustaining (number of products) 101,000 1 1 2 Other (organization-sustaining costs) 60,400 NA NA NA Total manufacturing overhead cost $ 493,220 Required 1.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.)
2.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.)
Explanation / Answer
Ans:
Required-1
Calculate traditional costing system:
Particulars
B300
T500
Total
Sales
$ 11,43,800.00
$ 5,08,000.00
$ 16,51,800.00
Cost of goods sold
$ 8,40,572.00
$ 3,77,648.00
$ 12,18,220.00
Marginal costing
$ 3,03,228.00
$ 1,30,352.00
$ 4,33,580.00
Expenses
Direct Material
$ 4,00,000.00
$ 1,62,700.00
$ 5,62,700.00
Direct labour
$ 1,20,100.00
$ 42,200.00
$ 1,62,300.00
Manufacturing Over heads
$ 3,64,983.00
$ 1,28,237.00
$ 4,93,220.00
Net Operation loss
$ 5,81,855.00
$ 2,02,785.00
$ 7,84,640.00
Required -2
Calculation of Activity base system:
= Indirect labour or Over heads / Direct labour
B300 = $493,220 / $364,983
= 1.35
T500= 3.84
Particulars
B300
T500
Total
Sales
$ 11,43,800.00
$ 5,08,000.00
$ 16,51,800.00
Cost of goods sold
$ 8,40,572.00
$ 3,77,648.00
$ 12,18,220.00
Marginal costing
$ 3,03,228.00
$ 1,30,352.00
$ 4,33,580.00
Expenses
Direct Material
$ 4,00,000.00
$ 1,62,700.00
$ 5,62,700.00
Direct labour
$ 1,20,100.00
$ 42,200.00
$ 1,62,300.00
Manufacturing Over heads
$ 3,64,983.00
$ 1,28,237.00
$ 4,93,220.00
Net Operation loss
$ 5,81,855.00
$ 2,02,785.00
$ 7,84,640.00
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