Reference no: EM132639357
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: Hi-Tek Manufacturing Inc. Sales Income Statement $ Cost of goods sold 1,766, 100 Gross margin 1,228,090 Selling and administrative expenses 538,010 590,000 Net operating loss $ (51,990) Hi-Tek produced and sold 60,100 units of B300 at a price of $21 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 $ 562,700
Direct labor $ 162,500 120,400 42,400 162,800
Manufacturing overhead 502,590
Cost of goods sold $ 1,228,090 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 and $108,000 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 90,900 62, 100 153,000
Setups (setup hours) 129,150 75 240 315
Product-sustaining (number of products) 101,600
Other (organization-sustaining costs) 60,700 NA NA NA
Total manufacturing overhead cost $ 502,590
Required:
Question 1. Compute the product margins for the B300 and T500 under the company's traditional costing system.
Question 2. Compute the product margins for B300 and T500 under the activity-based costing system.
Question 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.