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Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statemen for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement 700 000

Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statemen for the most recent period is shown below: Hi-Tek Manufacturing, Incorporated Income Statement 700 000

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter18: Activity-based Costing
Section: Chapter Questions
Problem 8E: Comfort Foods Inc. uses activity-based costing to determine product costs. For each activity listed...
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Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Sales Hi-Tek Manufacturing, Incorporated Cost of goods sold Income Statement Gross margin Selling and administrative expenses Net operating loss $ 1,708,000 1,255,280 452,720 620,000 $ (167,280) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 $ 400,600 $ 121,000 T500 $ 163,000 $ 42,400 Total $ 563,600 163,400 528,280 $ 1,255,280 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $107,000 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 $ 214,340 152,040 101,200 B300 90,300 72 Activity T500 62,800 290 111 Total 153,100 362 2 60,700 NA NA NA $ 528,280
Transcribed Image Text:Hi-Tek Manufacturing, Incorporated, makes two industrial component parts-B300 and T500. An absorption costing income statement for the most recent period is shown below: Sales Hi-Tek Manufacturing, Incorporated Cost of goods sold Income Statement Gross margin Selling and administrative expenses Net operating loss $ 1,708,000 1,255,280 452,720 620,000 $ (167,280) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 $ 400,600 $ 121,000 T500 $ 163,000 $ 42,400 Total $ 563,600 163,400 528,280 $ 1,255,280 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $107,000 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 $ 214,340 152,040 101,200 B300 90,300 72 Activity T500 62,800 290 111 Total 153,100 362 2 60,700 NA NA NA $ 528,280
Compute the product margins for B300 and T500 under the company's traditional costing system. Compute the product margins for B300 and T500 under the activity-based costing system. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Transcribed Image Text:Compute the product margins for B300 and T500 under the company's traditional costing system. Compute the product margins for B300 and T500 under the activity-based costing system. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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