Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the B3

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 Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,701,300 1,224,383 476,917 560,000 (83,083) Hi-Tek produced and sold 60,300 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 Cost of goods sold 400,100 162,100562,200 162,700 499,483 s1,224,383 120,400 42,300 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $56,000 and $103,000 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:

Explanation / Answer

Statement Showing Product Margin Under Traditional Costing System B300 T500 Total Sales in Unit 60300 12700 Selling price per unit $20 $39 Sales in $ $1,206,000 $495,300 $1,701,300 Less: Cost of Goods Sold Direct material 400100 162100 562200 Direct Labour 120400 42300 162700 Manufacturing Overhead 369623.5599 129859.4401 499483 Cost of goods Sold 890124 334259 1224383 Gross Margin $315,876 $161,041 $476,917 Traceable Selling & Adm. Exp. 56000 103000 159000 Product Margin $259,876 $58,041 $317,917 Non Traceable Selling & Adm Exp. 401000 Net Operating Profit / (Loss) ($83,083) Answer 2. Activity Cost Pool Estimated Overhead Expected use of Cost Drivers Activity-Based Overhead rate Machining 203623 153100 1.33 per machine hour Setups 133560 318 420 per setup hour Product Sustaining 101600 2 50800 per product Total Overhead 438783 Allocation of Overhead Cost Under ABC Particulars Model Total B300 T500 Machining 119966 83657 203623 Setups 24804 76320 101124 Product Sustaining 50800 50800 101600 Total 195570 210777 406347 Statement Showing Product Margin Under ABC B300 T500 Total Sales in Unit 60300 12700 Selling price per unit $20 $39 Sales in $ $1,206,000 $495,300 $1,701,300 Less: Cost of Goods Sold Direct material 400100 162100 562200 Direct Labour 120400 42300 162700 Manufacturing Overhead 195570 210777 406347 Cost of goods Sold 716070 415177 1131247 Gross Margin $489,930 $80,123 $570,053 Traceable Selling & Adm. Exp. 56000 103000 $159,000 Product Margin $433,930 ($22,877) $411,053 Non Traceable Selling & Adm Exp. $401,000 Non Traceable Other Manufacturing Exp. 60700 Net Operating Profit / (Loss) ($50,647) Answer 3. B300 T500 Total Amt % of Total Amt. % of Total Amt. Amount Traditional Cost System Direct material 400100 71.17% 162100 28.83% 562200 Direct Labour 120400 74.00% 42300 26.00% 162700 Manufacturing Overhead 369624 74.00% 129859.44 26.00% 499483 Traceable Selling & Adm. Exp. 56000 35.22% 103000 64.78% 159000 Total Cost Assigned to product 946123.5599 437259.4401 1383383 Non Traceable Selling & Adm Exp. 401000 Total Cost 982383 B300 T500 Total Amt % of Total Amt. % of Total Amt. Amount Activity Based Costing Direct Costs Direct material 400100 71.17% 162100 28.83% 562200 Direct Labour 120400 74.00% 42300 26.00% 162700 Indirect Costs Machining 119966 58.92% 83657 41.08% 203623 Setups 24804 24.53% 76320 75.47% 101124 Product Sustaining 50800 50.00% 50800 50.00% 101600 Traceable Selling & Adm. Exp. 56000 35.22% 103000 64.78% 159000 Total Cost assigned to products 251570 313777 565347 Costs not assigned to products Non Traceable Other Manufacturing Exp. 60700 Non Traceable Selling & Adm Exp. 401000 Total costs 1027047

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