Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300

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 60,400 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:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 and $109,000 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:

Required

1a. 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.)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))

b. 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.)

c. 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))

Thank you in advance for your help!

Hi-Tek Manufacturing Inc.
Income Statement Sales $ 1,703,300 Cost of goods sold 1,231,384 Gross margin 471,916 Selling and administrative expenses 560,000 Net operating loss $ (88,084)

Explanation / Answer

1. Product Margin under Traditional

2. Product Margin under ABC

3.

Comparison

Product margin under traditional system is B300 T500 Total A No. of units 60,400 12,700 73,100 B Sale price per unit 20 39 C=A*B Sale Value 1,208,000 495,300 1,703,300 D Direct Material 400,800 162,800 563,600 E Direct Labor 120,700 42,400 163,100 F=D+E Total Direct Costs 521,500 205,200 726,700 G Manufacturing Overhead 373,485 131,199 504,684 H =F+G Total Product Cost 894,985 336,399 1,231,384 I=C-H Product Margin 313,015 158,901 471,916

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