Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2416294 • 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 60,400 units of B300 at a price of $20 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:
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $52,000 and $106,000 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. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)
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) and other answers to nearest whole dollar amounts.)
Garrison 15e Recheck 2015-01-16
Hi-Tek Manufacturing Inc.Income Statement Sales $ 1,708,000 Cost of goods sold 1,216,978 Gross margin 491,022 Selling and administrative expenses 560,000 Net operating loss $ (68,978)
Explanation / Answer
1.
Product margin under traditional system is
2.
Product Margin under ABC system is
3.
Comparison in both methods is
B300 T500 No. of units 60,400 12,500 Sale price per unit 20 40 Sale Value 1,208,000 500,000 Direct Material 400,900 162,200 Direct Labor 121,000 42,800 Total Direct Costs 521,900 205,000 Manufacturing Overhead (Traditional Costing) 362,023 128,055 Total Product Cost 883,923 333,055 Product Margin 324,077 166,945