Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2395477 • Letter: H
Question
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 below:
Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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:
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $50,000 and $100,000 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
Compute the product margins for the B300 and T500 under the company’s traditional costing system.
Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
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 below:
Explanation / Answer
Traditional costing system B300 T500 Amount Amount Total amount Direct labour $200,000 65.8% $104,000 34.2% $304,000 Direct material $436,300 63.4% $251,700 36.6% $688,000 manufacturing overhead ($608000/304000*200000 or 104000) $400,000 65.8% $208,000 34.2% $608,000 Total cost assigned to product $1,036,300 $563,700 $1,600,000 Selling and administrative $550,000 Total cost $2,150,000 Activity based costing system B300 T500 Amount Amount Total amount Direct cost Direct material $436,300 63.4% $251,700 36.6% $688,000 Direct labour $200,000 65.8% $104,000 34.2% $304,000 Advertising expense $50,000 33.3% $100,000 66.7% $150,000 Indirect cost machine ($213500/(90000+62500)*90000 or 62500) $126,000 59.0% $87,500 41.0% $213,500 set ups ($157500/375*75 or 375) $31,500 20.0% $126,000 80.0% $157,500 product sustaining ($120000/2*1) $60,000 50.0% $60,000 50.0% $120,000 Total cost assigned to product $903,800 $729,200 $1,633,000 Selling and administrative ($550000-$150000) $400,000 Others $117,000 $2,150,000