90.2K

Verified Solution

Link Copied!

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 $1,772,200 Cost of goods sold Gross margin Selling and administrative expenses 1254,166 518,034 600,000 Net operating loss $ (81,966) Hi-Tek produced and sold 60,200 units of B300 at a price of $21 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: B300 T500 Total Direct materials Direct labor $120,300 $ 43,000 Manufacturing overhead Cost of goods sold $400,300 $162,200 $ 562,500 163,300 528,366 $1,254,166 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50,000 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: Activit Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) other (organization- sustaining costs) Total manufacturing overhead cost Manufacturing B300 T500 Total $204,886 90,800 62,100 152,900 367 2 Overhead 161,480 101,600 290 60,400 NA NA NA $528,366 Required: 1. Compute the product margins for the B300 and T500 under the company's traditional costing system 2. Compute the product margins for B300 and T500 under the activity-based costing system 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments

Answer & Explanation Solved by verified expert

See Answer