Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2418650 • 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 Manufacturing Inc.
Income Statement
Sales
$
1,709,200
Cost of goods sold
1,211,334
Gross margin
497,866
Selling and administrative expenses
630,000
Net operating loss
$
(132,134)
Hi-Tek produced and sold 60,500 units of B300 at a price of $20 per unit and 12,800 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:
B300
T500
Total
Direct materials
$
400,400
$
162,200
$
562,600
Direct labor
$
120,700
$
42,200
162,900
Manufacturing overhead
485,834
Cost of goods sold
$
1,211,334
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 $108,000 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:
Manufacturing
Activity
Activity Cost Pool (and Activity Measure)
Overhead
B300
T500
Total
Machining (machine-hours)
$
200,954
90,600
62,800
153,400
Setups (setup hours)
122,180
78
220
298
Product-sustaining (number of products)
102,000
1
1
2
Other (organization-sustaining costs)
60,700
NA
NA
NA
Total manufacturing overhead cost
$
485,834
How do you calcualte the Selling and Adminstrative Expense under the ABC costing system?
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
Organization-sustaining costs are not assigned to products. These costs represent resources that are not consumed by the products
Allocation of selling and administrative expense
Selling and administrative expense 630000 Less: Advertising expense: (57000+108000) -165000 Remainder: Organization sustaining Expense 465000