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	$ 1,693,500
COST OF GOODS SOLD	1,243,934
GROSS MARGIN	449,566
SELLING AND ADMINISTRATIVE EXPENSES	580,000
NET OPERATING LOSS	$ (130,434)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,500 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:

	B300	T500	TOTAL
DIRECT MATERIALS	$ 400,100	$ 162,100	$ 562,200
DIRECT LABOR	$ 120,300	$ 43,000	163,300
MANUFACTURING OVERHEAD			518,434
COST OF GOODS SOLD			$ 1,243,934

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $56,000 and $107,000 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 COST POOL (& ACTIVITY MEASURE	MANUFACTURING OVERHEAD	ACTIVITY B300	ACTIVITY T500	ACTIVITY   TOTAL
MACHINE (MACHINE-HRS)	$ 211,554	90,500	62,800	153,300
SETUPS (SETUP HRS)	146,080	72	260	332
PRODUCT-SUSTAINING ( # OF PRODUCTS)	100,800	1	1	2
OTHER (ORGANIZATION-SUSTAINING COSTS)	60,000	NA	NA	NA
TOTAL MANUFACTURING OVERHEAD COST	$ 518,434

****** 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	??	??	??

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.)

	B300	T500	TOTAL
PRODUCT MARGIN	??	??	??

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))

	B300	B300		T500	T500
		% OF			% OF		TOTAL
	AMOUNT	TOTAL AMOUNT		AMOUNT	TOTAL AMOUNT
TRADITIONAL COST SYSTEM							AMOUNT
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
TOTAL COST ASSIGNED TO PRODUCTS	??			??			??
??							??
TOTAL COST							??

	B300	B300		T500	T500		TOTAL
		% OF			% OF
	AMOUNT	TOTAL AMOUNT		AMOUNT	TOTAL AMOUNT		AMOUNT
ACTIVITY-BASED COSTING SYSTEM
DIRECT COST:
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
INDIRECT COSTS:
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
??	??	??	%	??	??	%	??
TOTAL COST ASSIGNED TO PRODUCTS	??			??			??
COSTS NOT ASSIGNED TO PRODUCTS:
??							??
??							??
TOTAL COST							??

( All the "?" spaces are the ones I NEED answered)

Answer 1

	1
	Product margin under the traditional system is
		B300	T500	Total
A	No. of units	60,300	12,500	72,800
B	Sale price per unit	20	39
C=A*B	Sale Value	1,206,000	487,500	1,693,500
D	Direct Material	400,300	162,700	563,000
E	Direct Labor	120,300	42,100	162,400
F=D+E	Total Direct Costs	520,600	204,800	725,400
G	Manufacturing Overhead	384,037	134,397	518,434
H =F+G	Total Product Cost	904,637	339,197	1,243,834
I=C-H	Product Margin	301,363	148,303	449,666

	2
	Product Margin under ABC system is
		B300	T500	Total
A	No. of units	60,300	12,500	72,800
B	Sale price per unit	20	39
C=A*B	Sale Value	1,206,000	487,500	1,693,500
D	Direct Material	400,300	162,700	563,000
E	Direct Labor	120,300	42,100	162,400
F=D+E	Total Direct Costs	520,600	204,800	725,400
G	Manufacturing Overhead (ABC)	262,970	358,464	621,434
H =F+G	Total Product Cost	783,570	563,264	1,346,834
I=C-H	Product Margin	422,430	-75,764	346,666
	Activity	Activity Cost Pool	Cost driver	B300	Calculation	T500	Calculation
	Machining	$211,554	Machine hours	124,890	90500/153300*211554	86,664	62800/153300*211554
	Setups	$146,080	Setup hours	31,680	72/332*146080	114,400	260/332*146080
	Product Sustaining	$100,800	No. of products	50,400	1/2*100800	50,400	1/2*100800
	Advertising Cost	$163,000		56,000		107,000
	Total	$621,434		$262,970		$358,464

3
Comparison of traditional and activity-based cost assignment is as follows:
	B300		T500		Total
	Amount	% of total amount	Amount	% of total amount	Amount
Traditional Cost system
Direct material	400,300	71%	162,700	29%	563,000
Direct labour	120,300	74%	42,100	26%	162,400
Manufacturing overhead	384,037	74%	134,397	26%	518,434
Total cost assigned to products	904,637	73%	339,197	27%	1,243,834
Selling and administrative					580,000
Total Cost					1,823,834
	B300		T500		Total
	Amount	% of total amount	Amount	% of total amount	Amount
Activity Based Costing System
Direct Costs
Direct material	400,300	71%	162,700	29%	563,000
Direct labour	120,300	74%	42,100	26%	162,400
Indirect Costs
Machining	124,890	59%	86,664	41%	211554
Setups	31,680	22%	114,400	78%	146080
Product Sustaining	50,400	50%	50,400	50%	100800
Advertising Cost	56,000	34%	107,000	66%	163,000
Total Cost assigned to products	783,570	58%	563,264	42%	1,346,834
Costs not assigned to products
Organization Sustaining costs					60,000
Selling and administrative					417,000
Total Costs					1,823,834