Hi-Tek Manufacturing, Incorporated, 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 Incorporated Income Statement Sales $ 1,703,300 Cost of goods sold 1,234,910 Gross margin 468,390 Selling and administrative expenses 560,000 Net operating loss $ (91,610) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 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: B300 T500 Total Direct materials $ 400,800 $ 162,300 $ 563,100 Direct labor $ 120,700 $ 43,000 163,700 Manufacturing overhead 508,110 Cost of goods sold $ 1,234,910 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 $108,000 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) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 206,550 90,800 62,200 153,000 Setups (setup hours) 139,860 73 260 333 Product-sustaining (number of products) 101,600 1 1 2 Other (organization-sustaining costs) 60,100 NA NA NA Total manufacturing overhead cost $ 508,110 Required: 1. 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, Incorporated, 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 Incorporated Income Statement Sales $ 1,703,300 Cost of goods sold 1,234,910 Gross margin 468,390 Selling and administrative expenses 560,000 Net operating loss $ (91,610) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 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: B300 T500 Total Direct materials $ 400,800 $ 162,300 $ 563,100 Direct labor $ 120,700 $ 43,000 163,700 Manufacturing overhead 508,110 Cost of goods sold $ 1,234,910 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 $108,000 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) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 206,550 90,800 62,200 153,000 Setups (setup hours) 139,860 73 260 333 Product-sustaining (number of products) 101,600 1 1 2 Other (organization-sustaining costs) 60,100 NA NA NA Total manufacturing overhead cost $ 508,110 Required: 1. 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.

Managerial Accounting

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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

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

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Hi-Tek Manufacturing, Incorporated, 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 Incorporated Income Statement
Sales	$ 1,703,300
Cost of goods sold	1,234,910
Gross margin	468,390
Selling and administrative expenses	560,000
Net operating loss	$ (91,610)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 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:

	B300	T500	Total
Direct materials	$ 400,800	$ 162,300	$ 563,100
Direct labor	$ 120,700	$ 43,000	163,700
Manufacturing overhead			508,110
Cost of goods sold			$ 1,234,910

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 $108,000 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)	Manufacturing Overhead	Activity
B300	T500	Total
Machining (machine-hours)	$ 206,550	90,800	62,200	153,000
Setups (setup hours)	139,860	73	260	333
Product-sustaining (number of products)	101,600	1	1	2
Other (organization-sustaining costs)	60,100	NA	NA	NA
Total manufacturing overhead cost	$ 508,110

Required:

1. 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.

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