Reference no: EM132633218

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 $1,657,700

Cost of goods sold 1,237,256

Gross margin 420,444

Selling and administrative expenses 560,000

Net operating loss$(139,556)

Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,800 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            $400,600               $162,900                $563,500

Direct labor                   $120,900              $42,100                   163,000

Manufacturing overhead  510,756

Cost of goods sold $1,237,256

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $103,000 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)                                     $209,336           90,500           62,300         152,800

Setups                    (setup hours)                                    140,220             72                    270            342

Product-sustaining   (number of products)                            101,000              1                   1               2

Other          (organization-sustaining costs)                           60,200              NA                NA              NA

Total manufacturing overhead cost $510,756

Required

Question 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.)

Question 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.)

Question 3. How do you do 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))