The answer to number 1 is correct. The answer to number 2 is NOT $204,194 ; $253

Question

The answer to number 1 is correct. The answer to number 2 is NOT $204,194 ; $253,400, which was an answer given to me previously by another chegg helper.

Thank you.

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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,699,400 1,243,594 455,806 590,000 134,194 Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 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 Direct labor Manufacturing overhead Cost of goods sold 400,300 S 162,600 $562,900 162,900 517,794 $ 1,243,594 $ 120,800 42,100 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 and $100,000 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 Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Overhead $ 202,224 154,370 101,000 60,200 517,794 B300 90,700 62,500 153,200 359 79 280 NA NA NA

Explanation / Answer

1. Product Margin under Traditional Costing :

2. Product Margin under Activity Based Costing :

Workings :

Activity Rates:

Total Indirect Cost :

Computation of Product Margin:

3. Quantitative Comparison : Traditional Costing v. Activity Based Costing

B300 T500 Total Product Margin $ 302,925 $ 152,881 $ 455,806

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