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:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,761,600
Cost of goods sold		1,237,964
Gross margin		523,636
Selling and administrative expenses		600,000
Net operating loss	$	(76,364	)

Hi-Tek produced and sold 60,300 units of B300 at a price of $21 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:

	B300		T500		Total
Direct materials	$	400,400	$	162,400	$	562,800
Direct labor	$	120,100	$	42,900		163,000
Manufacturing overhead						512,164
Cost of goods sold					$	1,237,964

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 $110,000 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 Overhead			Activity
Activity Cost Pool (and Activity Measure)				B300	T500	Total
Machining (machine-hours)	$	202,224		90,400	62,800	153,200
Setups (setup hours)		147,840		72	280	352
Product-sustaining (number of products)		101,400		1	1	2
Other (organization-sustaining costs)		60,700		NA	NA	NA
Total manufacturing overhead cost	$	512,164
REQUIREMENTS- 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 $0 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 Total % of % of Amount Amount Amount Traditional Cost System % % % % % % Total cost assigned to products $0 $0 $0 Total cost $0 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % % % Indirect costs: % % % % % % Total cost assigned to products $0 $0 0 Costs not assigned to products: Total cost $0

Answer 1

	B300	T500	Total
Product Margin	495532	-71196	424336

Working:

	B300	T500	Total
Sales	1266300	495300	1761600
Direct costs:
Direct materials	400400	162400	562800
Direct labor	120100	42900	163000
Manufacturing overhead	200268	251196	451464
Traceable advertisng exp.	50000	110000	160000
Total traceable costs	770768	566496	1337264
Product Margin	495532	-71196	424336

Assignment of manufacturing overheads:
Actvity Pool	Total cost	Activity Units			Activity Cost
		B300	T500	Total	B300	T500	Total
Machining	202224	90400	62800	153200	119328	82896	202224
Setups	147840	72	280	352	30240	117600	147840
Prodcut Sustaining	101400	1	1	2	50700	50700	101400
Total					200268	251196	451464

2.

	B300		T500		Total
	Amount	%	Amount	%
Traditional cost system
Direct Material	400400	71%	162400	29%	562800
Direct Labor	120100	74%	42900	26%	163000
Manufacturing Overhead	377367	74%	134797	26%	512164
Total costs assigned to products	897867		340097		1237964
Selling and administrative expenses					600000
Total Costs					1837964
Activity-based costing system:
Direct Costs:
Direct Material	400400	71%	162400	29%	562800
Direct Labor	120100	74%	42900	26%	163000
Advertising Expenses	50000	31%	110000	69%	160000
Total Direct Costs	570500		315300		885800
Indirect Costs
Machining	119328		82896		202224
Setups	30240		117600		147840
Prodcut Sustaining	50700		50700		101400
Total indirect costs	200268		251196		451464
Total costs assigned to products	770768		566496		1337264
Costs not assigned to products
Manufacturing overhead					60700
Selling and administrative expenses					440000
Total costs					1837964