Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2581536 • Letter: H
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 60,200 units of B300 at a price of $21 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:
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 $107,000 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:
Activity
Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)
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. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)
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:
Explanation / Answer
Given: Hi-Tek Manufacturing Inc. makes two types of industrial component parts (B300 & T500). An absorption costing income statement for the most recent period is shown below. Hi-Tek Manufacturing Inc. Absorption Costing Income Statement Most Recent Period Sales $1,751,700 Cost of Goods Sold 1,223,464 Gross Margin $528,236 Selling & Administrative Expenses 560,000 Net operating Loss ($31,764) Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,500 units of T500 at a price of $39 per unit. The company's traditional cost system allocates mfg. 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 $401,000 $162,400 $563,400 Direct labor 120,900 42,400 163,300 Manufacturing overhead 496,764 Cost of Goods Sold $1,223,464 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 $107,000 of the company's advertising expenses could be directly traced to B300 and T500 respectively. The remainder of the selling & administrative expenses was organization-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as shown below: Cost 1st Stage Cost Pool Pool Activity Driver Usage Pool Activity Cost Pool Driver Allocations B300 T500 Total Rates Machining MHr. $209,884 90,400 62,800 153,200 $1.370 Setups Setup Hrs. 125,580 79 220 299 $420 Product Sustaining # of Products 100,800 1 1 2 $50,400 Organizational Sustaining NA 60,500 NA NA NA Total Mfg. Overhead $496,764 Required: 1. Compute the product margins for the B300 and T500 under the company's traditional costing system. PMOH Rate = Estimated total mfg. OH cost / Estimated total DL $ PMOH Rate = $496,764 / $163,300 $3.04 per DL$ B300 T500 Total Sales $1,264,200 $487,500 $1,751,700 Direct materials $401,000 $162,400 $563,400 Direct labor 120,900 42,400 163,300 Manufacturing overhead applied 367,782 128,982 496,764 Total manufacturing costs $889,682 $333,782 $1,223,464 Product margin (Traditional Gross Margin) $374,518 $153,718 $528,236 Note: All of the mfg. overhead costs is applied to either B300 or T500. 2. Compute the product margins for the B300 and T500 under the activity-based costing system. B300 T500 Total Sales $1,264,200 $487,500 $1,751,700 Direct materials $401,000 $162,400 $563,400 Direct labor 120,900 42,400 163,300 Advertising expense 58,000 107,000 165,000 MOH assigned (2nd Stage Allocations) Machining pool 123,848 86,036 209,884 Setup pool 33,180 92,400 125,580 Product sustaining 50,400 50,400 100,800 Total costs assigned $787,328 $540,636 $1,327,964 Product margin (ABC) $476,872 ($53,136) $423,736 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Direct Materials 401000 71.18% 162400 28.82% 563,400 Direct labor 120900 74.04% 42400 25.96% 163,300 manufacturing Overhead 367782 74.04% 128982 25.96% 496,764 Total cost assigned to products 889682 333782 1,223,464 Selling and administrative expenses 560,000 Total cost 1,783,464 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct Materials 401000 71.18% 162400 28.82% $ 563,400 Direct labor 120900 74.04% 42400 25.96% $ 163,300 Advertising Expense 58000 35.15% 107000 64.85% $ 165,000 Indirect costs: Machining pool 123848 59.01% 86036 40.99% $ 209,884 Setup pool 33180 26.42% 92400 73.58% $ 125,580 Product sustaining 50400 50.00% 50400 50.00% $ 100,800 Total cost assigned to products 787328 540636 $ 1,327,964 Costs not assigned to products: Other $ 60,500 Selling and administrative expenses $ 395,000 Total cost $ 1,783,464
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