Problem 7-16 Comparing Traditional and Activity-Based Product Margins LO7-1, LO7
ID: 2545974 • Letter: P
Question
Problem 7-16 Comparing Traditional and Activity-Based Product Margins LO7-1, LO7-3, LO7-4, LO7-5) 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 Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,759,280 1,228,460 530,740 580,000 (49,260) Hi-Tek produced and sold 60,000 units of 8300 at a price of $21 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 8300 T5e0 Total Direct materials Direct labor Manufacturing overhead Cost of goods sold 162,000 562,800 162,700 582,960 $ 1,228,460 120,680 42,100Explanation / Answer
1 Manufacturing overhead rate = 502960/162700 3.091 B300 T500 Total Sales 1260000 499200 1759200 Cost of goods sold Direct material 400800 162000 562800 Direct labor 120600 42100 162700 Manufacturing overheads 372815 130145 502960 (120600*3.091) (42100*3.091) Total cost of goods sold 894215 334245 1228460 Product margin 365785 164955 530740 Selling and administrative 580000 Net operating Loss -49260 ABC Total cost Total cost driver Cost per driver B300 T500 Total Machining cost 206280 152800 1.35 122040 84240 206280 Setup cost 135880 316 430 32680 103200 135880 Product sustaining 100600 2 50300 50300 50300 100600 Other cost 60200 502960 2 ABC B300 T500 Total Sales 1260000 499200 1759200 Cost Direct material 400800 162000 562800 Direct labor 120600 42100 162700 Machining cost 122040 84240 206280 Indirect cost Setup cost 32680 103200 135880 Product sustaining 50300 50300 100600 Advertising 55000 103000 158000 Total cost 781420 544840 1326260 Product margin 478580 -45640 432940 Other cost 60200 Other selling and admin 422000 Net operating loss -49260