Hi-Tek statement for the most recent period is shown g. Inc., makes two types of

Question

Hi-Tek statement for the most recent period is shown g. Inc., makes two types of industrial parts-the 8300 and the T500 An absorption conting income 10 Cost of goods sold Gross argin $1,700, 000 1,233, 485 and 600,000 Net operating loss Print Hi-Tek pr and sold 60,000 units of B300 at a price of $20 per unit and 12.500 units of T500 at a price of $40 per unit The s traditional cost system allocates manufacturing overhead to products using a s two product lines is shown below Direct materials $400,700 $162,200562,900 Direct labor Manufacturing overhead Cost of goods sold $120,800 42,900 163,700 506,885 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC in 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 distributed the company's manufacturing overhead to four activities as shown below The ABC team also Activity Cost Pool (and Activity Manufacturing TS00 Total B300 s 210.295 90.800 62.700 153.500 sure) head Machinina (machine-hours) Do you want to

Explanation / Answer

1 Plant wide overhead rate=Manufacturing overhead/Total direct labour cost=506885/163700=3.10 Computation of product margin under traditiona costing B300 T500 Total Sales 1200000 500000 1700000 (60000*20) (12500*40) Lesss:Total costs Direct materials 400700 162200 562900 Direct labor 120800 42900 163700 Manufacturing overhead 374045 132840 506885 (120800*3.10) (42900*3.10) Product margin 304455 162060 466515 2 Computation of product margin under activity-based cost assignments: B300 T500 Total Sales 1202000 500000 1702000 (60100*20) (12500*40) Lesss:Total costs Direct materials 400700 162200 562900 Direct labor 120800 42900 163700 Manufacturing overhead 207486 239099 446585 (Note:1) Product margin 473014 55801 528815 Notes: 1. Manufacturing overhead under activity-based costing: Activity allocated overhead Activity cost pool Manufactuirng overhead B300 T500 Total Cost driver rates B300 T500 Total 1 2 3 4 5 6=2/5 7=3*6 8=4*6 9=7+8 Machining 210295 90800 62700 153500 1.37 124396 85899 210295 Setups 134890 79 250 329 410 32390 102500 134890 Product-sustaining 101400 1 1 2 50700 50700 50700 101400 Other 61000 Cant be allocated Total 207486 239099 446585 3 Quanitative comparison of traditional and activity based costing: B300 T500 Total % of % of Amount Total amount Amount Total amount Amount Traditional cost system Direct materials 400700 71.18% 162200 28.82% 562900 Direct labor 120800 73.79% 42900 26.21% 163700 Manufacturing overhead 374045 73.79% 132840 26.21% 506885 Total costs assigned to products 895545 337940 1233485 Selling and administrative 560000 total cost 1793485 B300 T500 Total % of % of Amount Total amount Amount Total amount Amount Activity-based costing system Direct materials 400700 71.18% 162200 28.82% 562900 Direct labor 120800 73.79% 42900 26.21% 163700 Advertising expenses 55000 35.26% 101000 64.74% 156000 Indirect costs: Machining 124396 59.15% 85899 40.85% 210295 Setups 32390 24.01% 102500 75.99% 134890 Product sustaining 50700 50.00% 50700 50.00% 101400 Total costs assigned to products 207486 239099 446585 Costs not assigneed to products Selling and administrative (600000-55000-101000-60100) 383900 Others 60100 total cost 2219770

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