HI-Tek Manufacturing, Inc., makes two types of industrial component parts-the B3

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: Sales Cost of goods sold Selling and administrative expenses Net operating loss 1,641,800 1,251,370 389,630 590,800 (200,370) Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12.700 units of T500 at a price of $39 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 Total Direct materials Direct labor Manufacturing overhead Cost of goods sold 480,80e 162,900563,700 162,580 525,170 120,28e 42,300 1,251,370 The company has created an activity-based costing system to evaluate the profitability of its products. HI-Tek's ABC implementation team concluded that $58,000 and $110.000 of the company's advertising expenses could be directly traced to 8300 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:

Explanation / Answer

1 Manufacturing overhead rate = 525170/162500 3.232 B300 T500 Total Sales 1145700 495300 1641000 Cost of goods sold Direct material 400800 162900 563700 Direct labor 120200 42300 162500 Manufacturing overheads 388464 136706 525170 (120200*3.232) (42300*3.232) Total cost of goods sold 909464 341906 1251370 Product margin 236236 153394 389630 Selling and administrative 590000 Net operating Loss -200370 ABC Total cost Total cost driver Cost per driver B300 T500 Total Machining cost 203490 153000 1.33 120764 82726 203490 Setup cost 159280 362 440 31680 127600 159280 Product sustaining 101600 2 50800 50800 50800 101600 Other cost 60800 525170 2 ABC B300 T500 Total Sales 1145700 495300 1641000 Cost Direct material 400800 162900 563700 Direct labor 120200 42300 162500 Machining cost 120764 82726 203490 Indirect cost Setup cost 31680 127600 159280 Product sustaining 50800 50800 101600 Advertising 58000 110000 168000 Total cost 782244 576326 1358570 Product margin 363456 -81026 282430 Other cost 60800 Other selling and admin 422000 Net operating loss -200370

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