Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2417831 • 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 12,700 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:
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $57,000 and $103,000 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
1. 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.)
2. 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.)
3. 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.)
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
1.
Product Margin under Traditional Costing system is
2. Product Margin under ABC is
3.
Quantitative comparison of traditional and Activity Based Costing is as follows:
B300 T500 Total No. of units 60,400 12,700 73,100 Sale price per unit 20 39 Sale Value 1,208,000 495,300 1,703,300 Direct Material 400,900 162,900 563,800 Direct Labor 120,400 42,500 162,900 Total Direct Costs 521,300 205,400 726,700 Manufacturing Overhead (Traditional Costing) 371,887 131,273 889,600 Total Product Cost 893,187 336,673 1,616,300 Product Margin 314,813 158,627 87,000