Reference no: EM13215518
1.value:
3.00 points
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. An absorption costing income statement for the most recent period is shown below:
Precision Manufacturing Inc.
Income Statement
Sales $ 1,644,800
Cost of goods sold 1,254,770
Gross margin 390,030
Selling and administrative expenses 550,000
Net operating loss $ (159,970)
PMI produced and sold 60,500 units of EX300 at a price of $19 per unit and 12,700 units of TX500 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:
EX300 TX500 Total
Direct materials $ 400,400 $ 162,300 $ 562,700
Direct labor $ 120,100 $ 42,300 162,400
Manufacturing overhead 529,670
Cost of goods sold $ 1,254,770
The company has created an activity-based costing system to evaluate the profitability of its products. PMI's ABC implementation team concluded that $57,000 and $101,000 of the company's advertising expenses could be directly traced to EX300 and TX500, 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 EX300 TX500 Total
Machining (machine-hours) $ 212,670 90,900 62,100 153,000
Setups (setup hours) 155,700 76 270 346
Product-sustaining (number of products) 101,000 1 1 2
Other (organization-sustaining costs) 60,300 NA NA NA
Total manufacturing overhead cost $ 529,670
Required
1.Compute the product margins for the EX300 and TX500 under the company's traditional costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. )
EX300 TX500 Total
Product margin $ $ $
2. Compute the product margins for EX300 and TX500 under the activity-based costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)
EX300 TX500 Total
Product margin $ $ $
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your percentage answers to one decimal place and other answers to the nearest dollar amount. Omit the "tiny_mce_markerquot; & "%" signs in your response.)
EX300 TX500 Total
Amount % of
Total Amount Amount % of
Total Amount Amount
Traditional Cost System
$ % $ % $
% %
% %
Total cost assigned to products $ $
Total cost $
Activity-Based Costing System
Direct costs:
$ % $ % $
% %
% %
Indirect costs:
% %
% %
% %
Total cost assigned to products $ $
Costs not assigned to products:
Total cost $