C | ezto.mheducation.com/hm.tpx Hi-Tek Manufacturing Inc. makes two types of ind

Question

C | ezto.mheducation.com/hm.tpx Hi-Tek Manufacturing Inc. makes two types of industrial component parts-the 8300 and the T500. An absorption costing income statement for the most recent period is shown below k Manufacturing Income Statement Sales Cost of goods sold $1,764,000 1,210,412 Gross margin Selling and administrative expenses 553,588 560,000 Net operating loss $ (6,412) Hi-Tek produced and sold 60,000 units of 8300 at a price of $21 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 $400,500 162,300 $ 562,800 162,100 485,512 S120,000 42,100 Cost of goods sold S 1,210,412 The company has created an activity-based costing system to evaluate the profitability of its products. Hi- Tek's ABC implementation team concluded that $59,000 and $110,000 of the company's advertising expenses could be dir

Explanation / Answer

PART 1 Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor dollars = 485512/162100 = 3.00 The product margins using the traditional approach would be computedas follows: B300 T500 Total sales 1260000 504000 1764000 direct materials 400500 162300 562800 direct labor 120000 42100 162100 manufacturing overhead 359417 126095 485512 total manufacturing cost 879917 330495 1210412 product margin 380083 173505 553588 PART 2 Activity Cost Pools total cost total activity activity rate machining 210312 152400 1.38 set ups 114800 287 400.00 product sustaining 100200 2 50100.00 B300 T500 Total sales 1260000 504000 1764000 direct materials 400500 162300 562800 direct labor 120000 42100 162100 advertising expense 59000 110000 169000 machining 124476 85836 210312 set ups 30800 84000 114800 product sustaining 50100 50100 100200 total cost 784876 534336 1319212 product margin 475124 -30336 444788 part 3 The quantitative comparison is as follows: Traditional Cost System B300 % T500 % Total direct materials 400500 71.16% 162300 28.84% 562800 direct labor 120000 74.03% 42100 25.97% 162100 manufacturing overhead 359417 74.03% 126095 25.97% 485512 Total cost assigned to products 879917 330495 1210412 Selling and administrative 560000 Total cost 1770412 Activity-Based Costing System Direct costs: direct materials 400500 71.16% 16230000.00% 28.84% 562800 direct labor 120000 74.03% 4210000.00% 25.97% 162100 advertising expense 59000 34.91% 11000000.00% 65.09% 169000 indirect costs machining 124476 59.19% 8583600.00% 40.81% 210312 set ups 30800 26.83% 8400000.00% 73.17% 114800 product sustaining 50100 50.00% 5010000.00% 50.00% 100200 Total cost assigned to products 784876 534336 1319212 Costs not assigned to products: Selling and administrative 391000 other 60200 Total cost 1770412

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