Hi-Tek Manufacturing Inc. makes two types of industrial component parts-the B300

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 Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $1,716,000 1,257,458 458,542 590,000 (131.458 Hi-Tek produced and sold 60,400 units of B300 at a price of S20 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 Manufacturing overhead Cost of goods sold $ 400,200 $ 162,300 S 562,500 162,900 $ 120,500 $ 42,400 1257.458 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and S102,000 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: Manufacturing 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 T500 Overhead S 212,948 157,810 101,000 60,300 S 532,058 B300 Total 90,900 62,300 290 153,200 367 NA NA NA Required 1. Compute the product margins for the B300 and T500 under the company's traditional costing system. (Do not round your overhead rate. Round your other intermediate and final answers to the nearest whole number.) B300 T500 Total Product margin

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Overhead Allocation - Traditional Costing System Particulars B300 T500 Total Estimated annual Production (In units) 60400 12700 Direct Labor Cost 120500 42400 162900 Overhead Cost Allocation basis direct labour dollar (Overhead / Total direct labor dollar * Labor dollar of model) $393,573 $138,485 $532,058.00 Manufacturing overhead cost per unit (Allocated Overhead / Nos of units) $6.52 $10.90

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