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 1,241,270 460, 730 560, 000 $ (99,270) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,500 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: T500 Total B39 $4,400 Direct materials Direct labor Manufacturing overhead Cost of goods sold $162,800 $120, 800 42,100 $ 563,2 162, 900 515,170e $1, 241, 270

Explanation / Answer

1. Product margin under Traditional system is :

2. Product Margin under ABC is:

3.

Quantitative comparison

1 Product margin under traditional system is B300 T500 Total A No. of units 60,100 12,500 72,600 B Sale price per unit 20 40 C=A*B Sale Value 1,202,000 500,000 1,702,000 D Direct Material 400,400 162,800 563,200 E Direct Labor 120,800 42,100 162,900 F=D+E Total Direct Costs 521,200 204,900 726,100 G Manufacturing Overhead 382,029 133,141 515,170 H =F+G Total Product Cost 903,229 338,041 1,241,270 I=C-H Product Margin 298,771 161,959 460,730

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