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	$	1,706,000
Cost of goods sold		1,213,260
Gross margin		492,740
Selling and administrative expenses		590,000
Net operating loss	$	(97,260)

Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 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	$	400,200	$	162,900	$	563,100
Direct labor	$	120,300	$	42,800		163,100
Manufacturing overhead						487,060
Cost of goods sold					$	1,213,260
he company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $102,000 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 Activity   Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total   Machining (machine-hours) $ 207,360      90,600   63,000 153,600     Setups (setup hours) 118,900      70   220   290   Product-sustaining (number of products) 100,800      1   1 2   Other (organization-sustaining costs) 60,000      NA NA NA   Total manufacturing overhead cost $ 487,060      Required 1. Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)       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.)

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)

Answer 1