Required 1. Compute the product margins for the B300 and T500 under the company’
ID: 2574673 • Letter: R
Question
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.)
2. 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.)
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your overhead rate. Round your other intermediate calculations and final answers to the nearest whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your overhead rate. Round your other intermediate calculations and final answers to the nearest whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
Hi-Tek Manufacturing Inc. makes two types of industrial component parts the B300 and the T500. An absorpton costing income statement or the most recent perid is shown below Hi-Tek Manufacturing Inc Income Statement S Cast of goods sold Gross margin Selling and administrative expenses Net opsralig loss 1,642,900 1,245 304 397,598 570,000 172 404 Hi Tek produced and sold 60 400 units of B300 et pnce of $19 per unit and 12 700 units of T500 a pnce of $39 per unit The company's traditional cost system allocates manufacturng overhead to products us ng plan rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below vide overhead T500 Tolal Direct materials Direct labcr Manufacluring overhead Cost of goods sold 5 400 400 S 162,700 563,100 163,400 518,804 45,304 s120,900 S 42500 The company has created n activily-based cosling systerri to evaluate the profilebility of its products. Hi-Tek's ABC irriplerientation team concluded thal $59,000 and $100,000 of the company's advertising expenses vould 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 Marnufacturing Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups(selup hours) Product sustaining (number of products) Other (omanization-sustaining costs) Tolal manufacturing overheed cost B300 T500 S 207,264 90,100 62,300 152 400 357 149,940 101,600 60,000 518 804 200 NA NA NAExplanation / Answer
Pre-determined OH rate under the traditional costing system = Estimated total mfg overhead cost/Estimated total direc labor dollars = 518804/163400 =
PRODUCTION MARGINS USING THE TRADITIONAL APPROACH:
Sales
Direct materials
Direct labor
Manufacturing overhead (at 317.5055% of direct labor cost)
Total manufacturing cost
Product margin
NOTE: The whole of the manufacturing overhead cost is assigned to the two products under
the traditional costing system.
DETERMINATION OF ACTIVITY RATES UNDER abc:
Activity cost pools
Machining
Setups
Product sustaining
NOTE: The costs of activity pool 'Other' are not assigned
as they are organization sustaining costs.
PRODUCT MARGINS UNDER ABC SYSTEM:
Sales
Direct materials
Direct labor
Manufacturing overhead:
Total cost
Product margin
Quantitative comparison under Traditional costing system:
Direct materials
Direct labor
Manufacturing overhead
Total cost assigned to products
Selling and administrative expenses
Total cost
Quantitative comparison under ABC system:
Direct materials
Direct labor
Manufacturing overhead:
Costs not assigned to products;
Other
Selling and administrative expenses
Total costs
1)Pre-determined OH rate under the traditional costing system = Estimated total mfg overhead cost/Estimated total direc labor dollars = 518804/163400 =
317.5055% of Direct labor costPRODUCTION MARGINS USING THE TRADITIONAL APPROACH:
B300 T500 TOTALSales
1147600 495300 1642900Direct materials
400400 162700 563100Direct labor
120900 42500 163400Manufacturing overhead (at 317.5055% of direct labor cost)
383864 134940 518804Total manufacturing cost
905164 340140 1245304Product margin
242436 155160 397596NOTE: The whole of the manufacturing overhead cost is assigned to the two products under
the traditional costing system.
2)DETERMINATION OF ACTIVITY RATES UNDER abc:
Activity cost pools
Total cost Total activity Activity rateMachining
207264 152400 1.36 per MHRSetups
149940 357 420.00 per set upProduct sustaining
101600 2 50800.00 per productNOTE: The costs of activity pool 'Other' are not assigned
as they are organization sustaining costs.
PRODUCT MARGINS UNDER ABC SYSTEM:
B300 T500 TOTALSales
1147600 495300 1642900Direct materials
400400 162700 563100Direct labor
120900 42500 163400Manufacturing overhead:
Machining 122536 84728 207264 Set ups 32340 117600 149940 Product sustaining 50800 50800 101600 Advertising 58000 100000 158000Total cost
784976 558328 1343304Product margin
362624 -63028 299596 3)Quantitative comparison under Traditional costing system:
B300 T500 a a/c b b/c cDirect materials
400400 71.1% 162700 28.9% 563100Direct labor
120900 74.0% 42500 26.0% 163400Manufacturing overhead
383864 74.0% 134940 26.0% 518804Total cost assigned to products
905164 340140 1245304Selling and administrative expenses
570000Total cost
1815304Quantitative comparison under ABC system:
Direct materials
400400 71.1% 162700 28.9% 563100Direct labor
120900 74.0% 42500 26.0% 163400 Advertising 58000 36.7% 100000 63.3% 158000Manufacturing overhead:
Machining 122536 59.1% 84728 40.9% 207264 Set ups 32340 21.6% 117600 78.4% 149940 Product sustaining 50800 50.0% 50800 50.0% 101600 Total costs assigned to products 784976 558328 1343304Costs not assigned to products;
Other
60000Selling and administrative expenses
412000Total costs
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