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	$	1,765,500
Cost of goods sold		1,224,490
Gross margin		541,010
Selling and administrative expenses		580,000
Net operating loss	$	(38,990)

Hi-Tek produced and sold 60,300 units of B300 at a price of $21 per unit and 12,800 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	$	400,500			$	162,500			$	563,000
Direct labor	$	120,400			$	42,200				162,600
Manufacturing overhead										498,890
Cost of goods sold									$	1,224,490

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $60,000 and $105,000 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)	$	211,140				90,300			62,700			153,000
Setups (setup hours)		126,850				75			220			295
Product-sustaining (number of products)		100,400				1			1			2
Other (organization-sustaining costs)		60,500				NA			NA			NA
Total manufacturing overhead cost	$	498,890
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 $375,772 $164,946 $540,718 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 $0 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         T500         Total         % of         % of         Amount         Total     Amount         Amount         Total     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