1. value: 11.00 points Hi-Tek Manufacturing Inc. makes two types of industrial c

Question

1. value: 11.00 points 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 $ 1,766,100 Cost of goods sold 1,240,486 Gross margin 525,614 Selling and administrative expenses 550,000 Net operating loss $ (24,386) Hi-Tek produced and sold 60,100 units of B300 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 $ 400,200 $ 162,800 $ 563,000 Direct labor $ 120,100 $ 42,100 162,200 Manufacturing overhead 515,286 Cost of goods sold $ 1,240,486 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $55,000 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: Manufacturing Activity Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 204,886 90,900 62,000 152,900 Setups (setup hours) 148,500 70 260 330 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 515,286 Required 1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Do not round your overhead rate. Round your other intermediate and final answers to the nearest whole number.) 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.) 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your overhead rate. Round your other intermediate calculations and final answers to the nearest whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))

Explanation / Answer

1 PRODUCT MARGINS UNDER TRADITIONAL COSTING SYSTEM B300 T500 Unit Total Unit Total A Sales $21 $        1,262,100 $40 $504,000 Manufacturing costs: B Direct materials $400,200 $162,800 C Direct labor $120,100 $42,100 D Manufacturing overhead $            381,540 $           133,746 E=B+C+D Total Manufacturing cost $901,840 $338,646 F=A-E Product margin $            360,260 $           165,354 Overhead Rate=515286/(120100+42100)= 3.176855734 Allocation of Manufacturing overhead to B-300=120100*3.176855734 Allocation of Manufacturing overhead to T-500=42100*3.176855734 2 PRODUCT MARGINS UNDER ACTIVITY BASED COSTING SYSTEM A B C=A+B D E=D/C F=A*E G=B*E Cost pool(cost driver) B-300 T-500 Total Total cost Rate Allocation to B300 Allocation to T500 Machining(Machine hours) 90900 62000 152900 $204,886 $1.34 $121,806 $83,080 Set ups(Setup hours) 70 260 330 $148,500 $450 $31,500 $117,000 Product sustaining (no. of products) 1 1 2 $101,200 $50,600 $50,600 $50,600 Organization sustaining $60,700 $203,906 $250,680 TOTAL $515,286 B300 T500 Unit Total Unit Total A Sales $21 $        1,262,100 $40 $504,000 Product costs: B Direct materials $400,200 $162,800 C Direct labor $120,100 $42,100 Manufacturing overhead: $            381,540 $           133,746 D Machining $121,806 $83,080 E Set ups $              31,500 $           117,000 F Product sustaining $50,600 $50,600 G=D+E+F Total manufacturing overhead $203,906 $250,680 H Advertising expenses $55,000 $101,000 I=B+C+G+H Total product costs $779,206 $556,580 J=A-I PRODUCT MARGIN $            482,894 $           (52,580) 3 TRADITIONAL AND ACTIVITY BASED COST ASSIGNMENT ANALYSIS B-300 T-500 Organization sustaining Traditional Activity Based Traditional Activity Based Activity Based Direct Material $400,200 $400,200 $162,800 $162,800 Direct Labor $120,100 $120,100 $42,100 $42,100 Manufacturing Overhead $           381,540 $203,906 $ 133,746 $250,680 $60,700 Selling & Administration costs NA $55,000 NA $101,000 $394,000 Total Cost $901,840 $779,206 $338,646 $556,580 $454,700

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