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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 below:


Hi-Tek Manufacturing Inc.
Income Statement
  Sales $ 1,689,500
  Cost of goods sold 1,221,607
  Gross margin 467,893
  Selling and administrative expenses 620,000
  Net operating loss $ (152,107)


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 $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 $ 400,900 $ 162,700 $ 563,600
  Direct labor $ 120,400 $ 42,200 162,600
  Manufacturing overhead 495,407
  Cost of goods sold $ 1,221,607


The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 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) $ 203,357      90,400   62,500 152,900  
  Setups (setup hours) 130,050      79   210   289
  Product-sustaining (number of products) 101,000      1   1 2
  Other (organization-sustaining costs) 61,000      NA NA NA
  Total manufacturing overhead cost $ 495,407     


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.)

     

     

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