FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

 

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:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
$ 1,657,500
1,224,620
432,880
620,000
Net operating loss
$ (187,120)
Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,700 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:
в300
T500
Total
$ 400,600
$ 120,400
Direct materials
$ 162,700
$ 42,000
563,300
162,400
498,920
Direct labor
Manufacturing overhead
Cost of goods sold
$ 1,224,620
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation
team concluded that $55,000 and $101,000 of the company's advertising expenses could be directly traced to B300 and T500,
respectively. Thb 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
Overhead
B300
T500
Total
Activity Cost Pool (and Activity Measure)
Machining (machine-hours)
Setups (setup hours)
Product-sustaining (number of products)
Other (organization-sustaining costs)
90,100 62,300
76
152,400
306
$ 205,740
131,580
101,600
60,000
230
1.
NA
NA
NA
Total manufacturing overhead cost
$ 498,920
Required:
%24
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Transcribed Image Text: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: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses $ 1,657,500 1,224,620 432,880 620,000 Net operating loss $ (187,120) Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,700 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: в300 T500 Total $ 400,600 $ 120,400 Direct materials $ 162,700 $ 42,000 563,300 162,400 498,920 Direct labor Manufacturing overhead Cost of goods sold $ 1,224,620 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $101,000 of the company's advertising expenses could be directly traced to B300 and T500, respectively. Thb 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 Overhead B300 T500 Total Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) 90,100 62,300 76 152,400 306 $ 205,740 131,580 101,600 60,000 230 1. NA NA NA Total manufacturing overhead cost $ 498,920 Required: %24
places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)
B300
T500
Total
% of
% of
Amount
Amount
Amount
Traditional Cost System
Total cost assigned to products
2$
Total cost
B300
T500
Total
% of
% of
Amount
Total Amount
Amount
Total Amount
Amount
Activity-Based Costing System
Direct costs:
Indirect costs:
Total cost assigned to products
24
0.
0.
Costs not assigned to products:
%24
%24
%24
%24
%%一%
%24
expand button
Transcribed Image Text:places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 Total % of % of Amount Amount Amount Traditional Cost System Total cost assigned to products 2$ Total cost B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Indirect costs: Total cost assigned to products 24 0. 0. Costs not assigned to products: %24 %24 %24 %24 %%一% %24
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