Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B3
ID: 2538543 • 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:
Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,700 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 $58,000 and $109,000 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:
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)
What is the advertising expense % of total amount?
Hi-Tek Manufacturing Inc.Income Statement Sales $ 1,710,000 Cost of goods sold 1,230,814 Gross margin 479,186 Selling and administrative expenses 580,000 Net operating loss $ (100,814 )
Explanation / Answer
Computation of advertising expense % of total amount:-
Total advertising expense = 167000
Total cost = 1810814
advertising expense % of total amount = Total advertising expense/Total cost
advertising expense % of total amount = 167000/1810814
advertising expense % of total amount = 9.22%