Hi-Tek Manufacturing, Inc., makes two types of industrialcomponent parts—the B300 and the T500. An absorption costing incomestatement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement |
| Sales | $ | 1,753,800 | |
| Cost of goods sold | | 1,234,694 | |
| Gross margin | | 519,106 | |
| Selling and administrative expenses | | 570,000 | |
| Net operating loss | $ | (50,894 | ) |
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Hi-Tek produced and sold 60,300 units of B300 at a price of $21per unit and 12,500 units of T500 at a price of $39 per unit. Thecompany’s traditional cost system allocates manufacturing overheadto products using a plantwide overhead rate and direct labordollars as the allocation base. Additional information relating tothe company’s two product lines is shown below:
| B300 | T500 | Total |
| Direct materials | $ | 400,900 | $ | 162,900 | $ | 563,800 |
| Direct labor | $ | 120,500 | $ | 42,400 | | 162,900 |
| Manufacturing overhead | | | | | | 507,994 |
| Cost of goods sold | | | | | $ | 1,234,694 |
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The company has created an activity-based costing system toevaluate the profitability of its products. Hi-Tek’s ABCimplementation team concluded that $54,000 and $105,000 of thecompany’s advertising expenses could be directly traced to B300 andT500, respectively. The remainder of the selling and administrativeexpenses was organization-sustaining in nature. The ABC team alsodistributed the company’s manufacturing overhead to four activitiesas shown below:
| Manufacturing
Overhead | Activity |
| Activity Cost Pool (and Activity Measure) | B300 | T500 | Total |
| Machining (machine-hours) | $ | 209,884 | | 91,000 | 62,200 | 153,200 |
| Setups (setup hours) | | 136,310 | | 77 | 240 | 317 |
| Product-sustaining (number of products) | | 100,800 | | 1 | 1 | 2 |
| Other (organization-sustaining costs) | | 61,000 | | NA | NA | NA |
| Total manufacturing overhead cost | $ | 507,994 | | | | |
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Required:
1. Compute the product margins for the B300 and T500 under thecompany’s traditional costing system.
2. Compute the product margins for B300 and T500 under theactivity-based costing system.
3. Prepare a quantitative comparison of the traditional andactivity-based cost assignments.
Compute the product margins for the B300 and T500 under thecompany’s traditional costing system. (Round your intermediatecalculations to 2 decimal places and final answers to the nearestwhole dollar amount.)
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| | B300 | T500 | Total | | Product margin | | | $0 |
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Compute the product margins for B300 and T500 under theactivity-based costing system. (Negative product margins should beindicated by a minus sign. Round your intermediate calculations to2 decimal places.)
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| | B300 | T500 | Total | | Product margin | | | $0 |
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Prepare a quantitative comparison of the traditional andactivity-based cost assignments. (Round your intermediatecalculations to 2 decimal places and "Percentage" answers to 1decimal place and and other answers to the nearest whole dollaramounts.)
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| | B300 | T500 | Total | | | % of | | % of | | | Amount | | | Amount | | | Amount | | Traditional Cost System | | | | | | | | | Direct materials | | | % | | | % | | | Direct labor | | | % | | | % | | | Manufacturing overhead | | | % | | | % | | | Total cost assigned to products | $0 | | | $0 | | | $0 | | Selling and administrative | | | | | | | | | Total cost | | | | | | | $0 | | | | | | | | | | B300 | T500 | Total | | | % of | | % of | | | Amount | Total Amount | Amount | Total Amount | Amount | | Activity-Based Costing System | | | | | | | | | Direct costs: | | | | | | | | | Direct materials | | | % | | | % | | | Direct labor | | | % | | | % | | | | | % | | | % | | | Indirect costs: | | | | | | | | | Machining | | | % | | | % | | | Setups | | | % | | | % | | | Product sustaining | | | % | | | % | | | Total cost assigned to products | $0 | | | $0 | | | 0 | | Costs not assigned to products: | | | | | | | | | Other | | | | | | | | | Selling and administrative | | | | | | | | | Total cost | | | | | | | $0 |
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