1. value: 11.00 points Hi-Tek Manufacturing Inc. makes two types of industrial c
ID: 2573381 • Letter: 1
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 $ 1,691,500 Cost of goods sold 1,231,948 Gross margin 459,552 Selling and administrative expenses 610,000 Net operating loss $ (150,448) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,500 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 $ 400,400 $ 163,000 $ 563,400 Direct labor $ 120,400 $ 43,000 163,400 Manufacturing overhead 505,148 Cost of goods sold $ 1,231,948 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $57,000 and $102,000 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) $ 205,288 90,400 62,800 153,200 Setups (setup hours) 137,760 76 260 336 Product-sustaining (number of products) 101,400 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 505,148 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
Hi Tech Manufacturing INC Income Statement Sales 1691500 Less: COGS 1231948 Manufacturing OH: B 300 T 500 Gross Profit 459552 Advertising Cost 57000 102000 159000 Less: Selling & Administrative Ex 610000 Net Operating Loss -150448 Manufacturing Activity Cost Activity Cost Pool B 300 T 500 Total Cost per Activity Overhead 205288 Machine Hours 90400 62800 153200 1.34 B 300 T 500 Setup Costs 137760 Set Up Numbers 76 260 336 410 Units Produced & Sold 60200 12500 Product Sustaining 101400 No of Products 1 1 2 50700 SP 20 39.00 Others 60700 NA NA 0 #DIV/0! Sales 1204000 487500 505148 Traditional System Direct Labor $ Manufacturing OH 505148 Less: Unallocable Cost 60700 Manufacturing OH 444448 DL Cost 163400 Per$ of Labor Recovery Rate 2.72 B 300 T 500 Total Direct Material 400400 163000 563400 Direct Labor 120400 43000 163400 Manufacturing OH 505148 Total 1231948 Product Margins in Traditional: B 300 T 500 Sales Price 20.00 39.00 Less: Product Costs: Direct Material 6.65 13.04 Direct Labor 2.00 3.44 Manufacturing OH 5.44 9.36 Product Margin 5.91 13.16 Product Margins Under ABC: B 300 T 500 Sales Price 20 39 Less: Product Costs: Direct Material 6.65 13.04 Direct Labor 2.00 3.44 Manufacturing OH: Overhead 2.01 6.73 Setup Costs 0.52 8.53 Product Sustaining 0.84 4.06 Product Margin 7.98 3.20 B 300 T 500 Product Margins in Traditional: 5.91 13.16 Product Margins Under ABC: 7.98 3.20 Note: Advertising Cost is a below the line item hence ignored and Unallocable cost are ignored in both so as to have a comparision between both systems
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