Chapter 7 Graded Problems Help Sales 9 2,100,000 1,600.000 500,000 Gross margin
ID: 2576508 • Letter: C
Question
Chapter 7 Graded Problems Help Sales 9 2,100,000 1,600.000 500,000 Gross margin Selling and administrative expenses Net operating loss (50,000) points Hl-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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 $436,300 251,700 $ 688,000 304,000 608,000 Print Direet naterials 200,000 104,000 Direct labor Manufacturing overhead Cost of goods sold s 1,600,000 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could be directly traced to 8300 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: ManufactaringActiv Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costa) Overhead300500Tot s 213,500 90,000 62,500 152,500 375 157,500 120,000 117,000 s 608,000 300 XA HA NA - Total nanufacturing overhead cost 1. Compute the product margins for the 8300 and T500 under the company's traditional costing system. 2. Compute the product margins for 8300 and T500 under the activity-based costing system. Required: 3. Prepare a quantitative comparison of the traditionel and activity-based cost assignments Pre..: 1.of 51 NextExplanation / Answer
Solution:
1. using the predetermined overhead rate computed as follows:
Predetermined overhead rate = Estimated total manufacturing overhead cost/Estimated total direct labor dollars
Predetermined overhead rate = $608,000/$304,000
Predetermined overhead rate = $2.00 per DL
using the traditional approach would be computed as follows:
B300
T500
Total
Sales...............................
$1,400,000
$700,000
$2,100,000
Direct materials.................
436,300
251,700
688,000
Direct labor.......................
200,000
104,000
304,000
Manufacturing overhead applied @ $2.00 per direct labor-dollar.....................
400,000
208,000
608,000
Total manufacturing cost....
1,036,300
563,700
1,600,000
Product margin.................
$ 363,700
$136,300
$ 500,000
2. The first step is to determine the activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Machining............
$213,500
152,500
MHR
$1.40
per MHR
Setups.................
$157,500
375
setup hrs.
$420
per setup hr.
Product sustaining
$120,000
2
products
$60,000
per product
Under the activity-based costing system, the product margins would be computed as follows:
B300
T500
Total
Sales............................
$1,400,000
$700,000
$2,100,000
Direct materials..............
436,300
251,700
688,000
Direct labor....................
200,000
104,000
304,000
Advertising expense.......
50,000
100,000
150,000
Machining.....................
126,000
87,500
213,500
Setups..........................
31,500
126,000
157,500
Product sustaining..........
60,000
60,000
120,000
Total cost......................
903,800
729,200
1,633,000
Product margin..............
$ 496,200
$(29,200)
$ 467,000
3. The quantitative comparison is as follows:
B300
T500
Total
Traditional Cost System
(a)
Amount
(a) ÷ (c)
%
(b)
Amount
(b) ÷ (c)
%
(c)
Amount
Direct materials
$436,300
63.4%
$251,700
36.6%
$ 688,000
Direct labor
200,000
65.8%
104,000
34.2%
304,000
Manufacturing overhead
400,000
65.8%
208,000
34.2%
608,000
Total cost assigned to products
$1,036,300
$563,700
$1,600,000
Selling and administrative
550,000
Total cost
$2,150,000
Activity-Based Costing System
Direct costs:
Direct materials
$436,300
63.4%
$251,700
36.6%
$ 688,000
Direct labor
200,000
65.8%
104,000
34.2%
304,000
Advertising expense
50,000
33.3%
100,000
66.7%
150,000
Indirect costs:
Machining
126,000
59.0%
87,500
41.0%
213,500
Setups
31,500
20.0%
126,000
80.0%
157,500
Product sustaining
60,000
50.0%
60,000
50.0%
120,000
Total cost assigned to products
$903,800
$729,200
1,633,000
Costs not assigned to products:
Selling and administrative
400,000
Other
117,000
Total cost
$2,150,000
B300
T500
Total
Sales...............................
$1,400,000
$700,000
$2,100,000
Direct materials.................
436,300
251,700
688,000
Direct labor.......................
200,000
104,000
304,000
Manufacturing overhead applied @ $2.00 per direct labor-dollar.....................
400,000
208,000
608,000
Total manufacturing cost....
1,036,300
563,700
1,600,000
Product margin.................
$ 363,700
$136,300
$ 500,000
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