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	$2,100,000
Cost of goods sold	1,600,000
Gross margin	500,000
Selling and administrative expenses	550,000
Net operating loss	$(50,000)

Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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	$436,300	$251,700	$688,000
Direct labor	$200,000	$104,000	304,000
Manufacturing overhead			608,000
Cost of goods sold			$1,600,000

The company has created an activity-based costing system to evaluate the profitability of its products. Hi- Tek's ABC implementation team concluded that $50,000 and $100,000 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
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead	B300	T500	Total
Machining (machine-hours)	$213,500	90,000	62,500	152,500
Setups (setup hours)	157,500	75	300	375
Product-sustaining (number of products)	120,000	1	1	2
Other (organization-sustaining costs)	117,000	NA	NA	NA
Total manufacturing overhead cost	$608,000

Please do not copy from chegg. Only attempt if you are 100% sure. Explain each calculation and step for thums up.

Prepare a Quantitative comparison of the traditional and activity-based cost assignments.

Answer 1

	B300	T500	Total
Sales Revenue	$          1,400,000	$           700,000	$    2,100,000
Costs
Direct Material	$             436,300	$           251,700	$       688,000
Direct Labor	$             200,000	$           104,000	$       304,000
Overhead	$             400,000	$           208,000	$       608,000
Total Cost	$          1,036,300	$           563,700	$    1,600,000
Product Margin	$             363,700	$           136,300	$       500,000
Units	70000	17500
Product Margin per unit	$                    5.20	$                 7.79

Overhead
B300 = $608000 / 304000 x 200000 = $400000, T500 = $608000 / 304000 x 104000

	B300	T500	Total
Sales Revenue	$          1,400,000	$           700,000	$    2,100,000
Costs
Direct Material	$             436,300	$           251,700	$       688,000
Direct Labor	$             200,000	$           104,000	$       304,000
Advertising	$                50,000	$           100,000	$       150,000
Overhead
Machining	$             126,000	$             87,500	$       213,500
Setups	$                31,500	$           126,000	$       157,500
Product Sustaining	$                60,000	$             60,000	$       120,000
Total Cost	$             903,800	$           729,200	$    1,633,000
Product Margin	$             496,200	$           -29,200	$       467,000
Units	70000	17500
Product Margin per unit	$                    7.09	$                -1.67

Activity	Cost	Cost Driver		Cost per Cost driver
Machining	$             213,500	152500	Machine hours	$                1.40
Setups	$             157,500	375	Setups	$           420.00
Product Sustaining	$             120,000	2	Products	$      60,000.00
Total	$             491,000

Overhead allocated = Cost Driver Quantity x Cost driver rate

	B300		T500		Total
Traditional Cost System
Direct Material	$             436,300	63.42%	$       251,700	36.58%	$       688,000
Direct Labor	$             200,000	65.79%	$       104,000	34.21%	$       304,000
Overhead	$             400,000	65.79%	$       208,000	34.21%	$       608,000
Total Cost assigned to Products	$          1,036,300		$       563,700		$    1,600,000
Selling and administrative expense					$       550,000
Total Cost					$    2,150,000
ABC
Direct Costs
Direct Material	$             436,300	63.42%	$       251,700	36.58%	$       688,000
Direct Labor	$             200,000	65.79%	$       104,000	34.21%	$       304,000
Advertising	$                50,000	33.33%	$       100,000	66.67%	$       150,000
Indirect Costs
Machining	$             126,000	59.02%	$          87,500	40.98%	$       213,500
Setups	$                31,500	20.00%	$       126,000	80.00%	$       157,500
Product Sustaining	$                60,000	50.00%	$          60,000	50.00%	$       120,000
Total Cost assigned to Products	$             903,800		$       729,200		$    1,633,000
Costs not assigned to products
Selling and administrative expense					$       400,000
Other					$       117,000
Total Cost					$    2,150,000