Hi-Tek Manufacturing Inc. makes two types of industrial component parts-the B300
ID: 2459295 • 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 1,764,000 Sales 1,251,507 Cost of goods sold Gross margin Se 512,493 820,000 lling and administrative Net operating loss S (107,507) Hi-Tek produced and sold 80,000 units of B300 at a price of S21 per unit and 12,800 units of T500 at a price of S40 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 Direct labor S 400,700 S 162,200 S 582,900 183,500 525,107 S 120,700 42,800 Cost of goods sold S 1,251,507 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $59,000 and S109,000 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 Manufacturing T500 Total B300 90,700 83,000 153,700 Activity Cost Pool (and Activity Measure Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products Other (organization-sustaining costs) Overhead S 201,347 162,380 100,400 81,000 79 290 369 NA NA NA Total manufacturing overhead cost S 525,107Explanation / Answer
Prodct Marging Under trading System B300 T500 Total Direct Material 400700 162200 562900 Direct Labour 120700 42800 163500 manufacturing Overhead* 433,973 91,134 525107 Selling & Distribution Cost 59,000 109,000 168000 Selling & Distribution Cost 373,554 78,446 452000 Total Cost 1,387,926 483,581 1,871,507 Sale 1260000 504000 1764000 Product margin -127,926 20,419 -107,507 525107/72600*60000 = 433973 525107/72600*60000 = 91134 Prodct Marging UnderActivity based System B300 T500 Total Direct Material 400700 162200 562900 Direct Labour 120700 42800 163500 manufacturing Overhead* machining Machine Hour 118,817 82,530 201347 Set up 34,760 127,600 162360 Product Sustaining 50,200 50,200 100400 Selling & Distribution Cost 59,000 109,000 168000 Total Cost 784,177 574,330 1,358,507 Sale 1260000 504000 1764000 Product margin 475,823 -70,330 405,493 Quantitative comparison under trading B300 T500 Amount % of total Amount Amount % of total Amount Total Amount Trading Costing Sysytem Direct Material 400700 71.2% 162200 28.8% 562900 Direct Labour 120700 73.8% 42800 26.2% 163500 manufacturing Overhead* 433,973 82.6% 91,134 17.4% 525107 Selling & Distribution Cost 432,554 69.8% 187,446 30.2% 620000 Total Cost 1387927 483,580 1871507 Quantitative comparison underActivity B300 T500 Amount % of total Amount Amount % of total Amount Total Amount Trading Costing Sysytem Direct Material 400,700 71.2% 162,200 28.8% 562,900 Direct Labour 120,700 73.8% 42,800 26.2% 163,500 manufacturing Overhead* 203,777 43.9% 260,300 56.1% 464,077 Selling & Distribution Cost 59,000 35.1% 109,000 64.9% 168,000 Total Cost Assigned To product 784,177 574,300 1,358,477 Cost Not Assigned to prodcut Other organization sustaining Cost 61,000 Selling & Distribution Cost 452,000 Total Cost 1,871,477