Hi-Tek Manufacturing Inc. makes two types of industrialcomponent parts—the B300 and the T500. An absorption costing incomestatement for the most recent period is shown below:
Hi-Tek Manufacturing Inc.
Income Statement |
| Sales | $ | 1,704,000 | |
| Cost of goods sold | | 1,218,682 | |
| Gross margin | | 485,318 | |
| Selling and administrative expenses | | 550,000 | |
| Net operating loss | $ | (64,682) | |
|
Hi-Tek produced and sold 60,000 units of B300 at a price of $20per unit and 12,600 units of T500 at a price of $40 per unit. Thecompany’s traditional cost system allocates manufacturing overheadto products using a plantwide overhead rate and direct labordollars as the allocation base. Additional information relating tothe company’s two product lines is shown below:
| B300 | T500 | Total |
| Direct materials | $ | 400,000 | | | $ | 162,800 | | | $ | 562,800 | |
| Direct labor | $ | 121,000 | | | $ | 42,900 | | | | 163,900 | |
| Manufacturing overhead | | | | | | | | | | 491,982 | |
| Cost of goods sold | | | | | | | | | $ | 1,218,682 | |
|
The company has created an activity-based costing system toevaluate the profitability of its products. Hi-Tek’s ABCimplementation team concluded that $52,000 and $102,000 of thecompany’s advertising expenses could be directly traced to B300 andT500, respectively. The remainder of the selling and administrativeexpenses was organization-sustaining in nature. The ABC team alsodistributed the company’s manufacturing overhead to four activitiesas shown below:
| Manufacturing | Activity |
| Activity Cost Pool (and Activity Measure) | Overhead | | | B300 | | | T500 | | | Total | |
| Machining (machine-hours) | $ | 212,382 | | | | 91,000 | | | 62,900 | | | 153,900 | |
| Setups (setup hours) | | 117,600 | | | | 74 | | | 220 | | | 294 | |
| Product-sustaining (number of products) | | 101,200 | | | | 1 | | | 1 | | | 2 | |
| Other (organization-sustaining costs) | | 60,800 | | | | NA | | | NA | | | NA | |
| Total manufacturing overhead cost | $ | 491,982 | | | | | | | | | | | |
|
Required
1. Compute the product margins for the B300 and T500 under thecompany’s traditional costing system. (Do not round youroverhead rate. Round your other intermediate and final answers tothe nearest whole number.)
2. Compute the product margins for B300 and T500 under theactivity-based costing system. (Negative product marginsshould be indicated by a minus sign. Round your intermediatecalculations to 2 decimal places.)
3. Prepare a quantitative comparison of the traditional andactivity-based cost assignments. (Do not round youroverhead rate. Round your other intermediate calculations and finalanswers to the nearest whole number. Round your "Percentage" answerto 1 decimal place. (i.e. .1234 should be entered as12.3))
