4Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B30
ID: 2774913 • Letter: 4
Question
4Hi-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 $ 1,644,000
Cost of goods sold 1,224,374
Gross margin 419,626
Selling and administrative expenses 610,000
Net operating loss $ (190,374)
Hi-Tek produced and sold 60,000 units of B300 at a price of $19 per unit and 12,600 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:
B300 T500 Total
Direct materials $401,000 $162,900 $563,900
Direct labor 120,600 42,400 163,000
Manufacturing overhead 497,474
Cost of goods sold $ 1,224,374
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $53,000 and $106,000 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 Cost Pool (and Activity Measure) MOH B300 T500 Total
Machining (machine-hours) $ 205,154 90,300 62,800 153,100
Setups (setup hours) 131,120 78 220 298
Product-sustaining (number of products) 100,800 1 1 2
Other (organization-sustaining costs) 60,400 NA NA NA
Total manufacturing overhead cost $ 497,474
Required
1.
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.)
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.)
Explanation / Answer
Answer:1
Answer:2
Particulars B300 T500 Total Sale 1140000 504000 1644000 Less: Direct Material 401000 162900 563900 Direct Labor 120600 42400 163000 Manufacturing overhead 368069.7 129404.3 497474 Product margin 250330.3 169295.7 419626Related Questions
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