Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-8300 and T500. An absorption costing income statement for the most recent period is shown below. Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,647,600 1,215,224 432,376 620,000 $ (187,624) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,500 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold 8388 T500 $ 400,400 $ 120,100 $163,000 $ 42,300 Total $ 563,400 162,400 489,424 $1,215,224 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $51,000 and $104,000 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) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 202,224 126,400 100,000 8300 98,900 Activity 7500 Total 62,300 153,200 76 248 316 1 1 2 60,800 NA NA NA $ 489,424 Required: 1. Compute the product margins for 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, Incorporated, makes two industrial component parts-8300 and T500. An absorption costing income statement for the most recent period is shown below. Hi-Tek Manufacturing, Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,647,600 1,215,224 432,376 620,000 $ (187,624) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,500 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold 8388 T500 $ 400,400 $ 120,100 $163,000 $ 42,300 Total $ 563,400 162,400 489,424 $1,215,224 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $51,000 and $104,000 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) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 202,224 126,400 100,000 8300 98,900 Activity 7500 Total 62,300 153,200 76 248 316 1 1 2 60,800 NA NA NA $ 489,424 Required: 1. Compute the product margins for 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9E: The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the...

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