Hi-Tek Manufacturing Inc. makes two types of industrial component parts—the B300
ID: 2418584 • 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 produced and sold 60,000 units of B300 at a price of $19 per unit and 12,600 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 $52,000 and $106,000 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
Compute the product margins for the B300 and T500 under the company’s traditional costing system.(Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)
Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)
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:
Explanation / Answer
1
Calculation of product margins under the company’s traditional costing system.:
B300
T500
Total
Sales
$ 1,140,000
$ 504,000
$ 1,644,000
(60000*19)
(12600*40)
Less: Direct Material
$ (400,700)
$ (162,600)
$ (563,300)
Less: Direct Labor
$ (120,700)
$ (42,000)
$ (162,700)
Less: Manufacturing overhead
$ (366,943)
$ (127,685)
$ (494,628)
(494628*120700/162700)
(494628*42000/162700)
Product Margin
$ 251,657
$ 171,715
$ 423,372
2
Calculation of product margins under the activity-based costing system.:
B300
T500
Total
Sales
$ 1,140,000
$ 504,000
$ 1,644,000
(60000*19)
(12600*40)
Less: Direct Material
$ (400,700)
$ (162,600)
$ (563,300)
Less: Direct Labor
$ (120,700)
$ (42,000)
$ (162,700)
Less: Manufacturing overhead Allocated (See working below)
$ (206,716)
$ (227,112)
$ (433,828)
Product Margin
$ 411,884
$ 72,288
$ 484,172
Workings:
Calculation of Overhead rates:
Activity Cost Pool (and Activity Measure)
Overhead
Total Activity
Overhead Rate
A
B
A/B
Machining (machine-hours)
$ 211,278.00
153,100
$ 1.38
Setups (setup hours)
$ 120,950.00
295
$ 410.00
Product-sustaining (number of products)
$ 101,600.00
2
$ 50,800.00
Other (organization-sustaining costs)
$ 60,800.00
NA
Total manufacturing overhead cost
$ 494,628.00
Calculation of Applied overhead :
For B300
Activity Cost Pool (and Activity Measure)
Activity
Overhead Rate
Overhead
A
B
A*B
Machining (machine-hours)
90700
$ 1.38
$ 125,166.00
Setups (setup hours)
75
$ 410.00
$ 30,750.00
Product-sustaining (number of products)
1
$ 50,800.00
$ 50,800.00
Overhead Allocated
$ 206,716.00
For T500
Activity Cost Pool (and Activity Measure)
Activity
Overhead Rate
Overhead
A
B
A*B
Machining (machine-hours)
62400
$ 1.38
$ 86,112.00
Setups (setup hours)
220
$ 410.00
$ 90,200.00
Product-sustaining (number of products)
1
$ 50,800.00
$ 50,800.00
Overhead Allocated
$ 227,112.00
1
Calculation of product margins under the company’s traditional costing system.:
B300
T500
Total
Sales
$ 1,140,000
$ 504,000
$ 1,644,000
(60000*19)
(12600*40)
Less: Direct Material
$ (400,700)
$ (162,600)
$ (563,300)
Less: Direct Labor
$ (120,700)
$ (42,000)
$ (162,700)
Less: Manufacturing overhead
$ (366,943)
$ (127,685)
$ (494,628)
(494628*120700/162700)
(494628*42000/162700)
Product Margin
$ 251,657
$ 171,715
$ 423,372
2
Calculation of product margins under the activity-based costing system.:
B300
T500
Total
Sales
$ 1,140,000
$ 504,000
$ 1,644,000
(60000*19)
(12600*40)
Less: Direct Material
$ (400,700)
$ (162,600)
$ (563,300)
Less: Direct Labor
$ (120,700)
$ (42,000)
$ (162,700)
Less: Manufacturing overhead Allocated (See working below)
$ (206,716)
$ (227,112)
$ (433,828)
Product Margin
$ 411,884
$ 72,288
$ 484,172
Workings:
Calculation of Overhead rates:
Activity Cost Pool (and Activity Measure)
Overhead
Total Activity
Overhead Rate
A
B
A/B
Machining (machine-hours)
$ 211,278.00
153,100
$ 1.38
Setups (setup hours)
$ 120,950.00
295
$ 410.00
Product-sustaining (number of products)
$ 101,600.00
2
$ 50,800.00
Other (organization-sustaining costs)
$ 60,800.00
NA
Total manufacturing overhead cost
$ 494,628.00
Calculation of Applied overhead :
For B300
Activity Cost Pool (and Activity Measure)
Activity
Overhead Rate
Overhead
A
B
A*B
Machining (machine-hours)
90700
$ 1.38
$ 125,166.00
Setups (setup hours)
75
$ 410.00
$ 30,750.00
Product-sustaining (number of products)
1
$ 50,800.00
$ 50,800.00
Overhead Allocated
$ 206,716.00
For T500
Activity Cost Pool (and Activity Measure)
Activity
Overhead Rate
Overhead
A
B
A*B
Machining (machine-hours)
62400
$ 1.38
$ 86,112.00
Setups (setup hours)
220
$ 410.00
$ 90,200.00
Product-sustaining (number of products)
1
$ 50,800.00
$ 50,800.00
Overhead Allocated
$ 227,112.00
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