Question

In: Accounting

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...

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 $ 1,763,700
Cost of goods sold 1,210,017
Gross margin 553,683
Selling and administrative expenses 610,000
Net operating loss $ (56,317 )

Hi-Tek produced and sold 60,400 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 $ 401,000 $ 162,400 $ 563,400
Direct labor $ 120,800 $ 42,100 162,900
Manufacturing overhead 483,717
Cost of goods sold $ 1,210,017

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 $104,000 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) $ 200,037 90,300 62,400 152,700
Setups (setup hours) 122,980 76 210 286
Product-sustaining (number of products) 100,400 1 1 2
Other (organization-sustaining costs) 60,300 NA NA NA
Total manufacturing overhead cost $ 483,717

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

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

Solutions

Expert Solution

Answer 1

B300 T500 Total
No. of units          60,400       12,700          73,100
Sale price per unit $              21 $           39
Sale Value $ 1,268,400 $ 495,300 $ 1,763,700
Direct Material $    401,000 $ 162,400 $    563,400
Direct Labor $    120,800 $   42,100 $    162,900
Total Direct Costs $    521,800 $ 204,500 $    726,300
Manufacturing Overhead (Traditional Costing) $    358,705 $ 125,012 $    483,717
Total Product Cost $    880,505 $ 329,512 $ 1,210,017
Product Margin $    387,895 $ 165,788 $    553,683

Answer 2

B300 T500 Total
No. of units          60,400       12,700          73,100
Sale price per unit $              21 $           39 $               -  
Sale Value $ 1,268,400 $ 495,300 $ 1,763,700
Direct Material $    401,000 $ 162,400 $    563,400
Direct Labor $    120,800 $   42,100 $    162,900
Total Direct Costs $    521,800 $ 204,500 $    726,300
Manufacturing Overhead (ABC) $    257,173 $ 326,244 $    583,417
Total Product Cost $    778,973 $ 530,744 $ 1,309,717
Product Margin $    489,427 $ (35,444) $    453,983

Note:

Activity Activity Cost Pool Cost driver B300 T500 Total
Machining $             200,037 Machine hours $ 118,293 $   81,744 $ 200,037
Setups $             122,980 Setup hours $   32,680 $   90,300 $ 122,980
Product Sustaining $             100,400 No. of products $   50,200 $   50,200 $ 100,400
Advertising Cost $             160,000 $   56,000 $ 104,000 $ 160,000
Total $             583,417 $ 257,173 $ 326,244 $ 583,417

Answer 3

B300 T500
Amount % of total amount Amount % of total amount Amount
Traditional Cost system
   Direct material $ 401,000 71.2% $ 162,400 28.8% $    563,400
   Direct labour $ 120,800 74.2% $   42,100 25.8% $    162,900
   Manufacturing overhead $ 358,705 74.2% $ 125,012 25.8% $    483,717
Total cost assigned to products $ 880,505 $ 329,512 $ 1,210,017
Selling and administrative $    610,000
Total Cost   $ 1,820,017
B300 T500 Total
Amount % Amount % Amount
Activity Based Costing System
Direct Costs
   Direct material $ 401,000 71.2% $ 162,400 28.8% $    563,400
   Direct labour $ 120,800 74.2% $   42,100 25.8% $    162,900
   Advertising $   56,000 35.0% $ 104,000 65.0% $    160,000
Indirect Costs
Machining $ 118,293 59.1% $   81,744 40.9% $    200,037
Setups $   32,680 26.6% $   90,300 73.4% $    122,980
Product Sustaining $   50,200 50.0% $   50,200 50.0% $    100,400
Total Cost assigned to products $ 778,973 59.5% $ 530,744 40.5% $ 1,309,717
Costs not assigned to products
   Other $       60,300
   Selling and administrative $    450,000
Total Costs $ 1,820,017

Related Solutions

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,770,300 Cost of goods sold 1,234,258 Gross margin 536,042 Selling and administrative expenses 590,000 Net operating loss $ (53,958 ) Hi-Tek produced and sold 60,300 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,704,000 Cost of goods sold 1,222,415 Gross margin 481,585 Selling and administrative expenses 590,000 Net operating loss $ (108,415 ) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,776,400 Cost of goods sold 1,233,700 Gross margin 542,700 Selling and administrative expenses 550,000 Net operating loss $ (7,300 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,700 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,645,900 Cost of goods sold 1,225,174 Gross margin 420,726 Selling and administrative expenses 590,000 Net operating loss $ (169,274 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $19 per unit and 12,600 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,691,400 Cost of goods sold 1,219,910 Gross margin 471,490 Selling and administrative expenses 570,000 Net operating loss $ (98,510 ) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,702,000 Cost of goods sold 1,218,323 Gross margin 483,677 Selling and administrative expenses 590,000 Net operating loss $ (106,323 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,500 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,699,400 Cost of goods sold 1,245,844 Gross margin 453,556 Selling and administrative expenses 640,000 Net operating loss $ (186,444 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,695,400 Cost of goods sold 1,234,000 Gross margin 461,400 Selling and administrative expenses 640,000 Net operating loss $ (178,600 ) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,655,600 Cost of goods sold 1,245,008 Gross margin 410,592 Selling and administrative expenses 580,000 Net operating loss $ (169,408 ) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $40 per unit....
Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption...
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 $ 1,753,500 Cost of goods sold 1,239,487 Gross margin 514,013 Selling and administrative expenses 590,000 Net operating loss $ (75,987 ) Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $39 per unit....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT