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 $ 1,643,000 Cost of goods sold 1,230,620 Gross margin 412,380 Selling and administrative expenses 620,000 Net operating loss $ (207,620) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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 $ 400,600 $ 162,700 $ 563,300 Direct labor $ 120,700 $ 42,900 163,600 Manufacturing overhead 503,720 Cost of goods sold $ 1,230,620 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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) 130,380 78 240 318 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 61,000 NA NA NA Total manufacturing overhead cost $ 503,720 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 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 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 Total cost 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 Costs not assigned to products: Total cost

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 $ 1,643,000 Cost of goods sold 1,230,620 Gross margin 412,380 Selling and administrative expenses 620,000 Net operating loss $ (207,620) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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 $ 400,600 $ 162,700 $ 563,300 Direct labor $ 120,700 $ 42,900 163,600 Manufacturing overhead 503,720 Cost of goods sold $ 1,230,620 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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) 130,380 78 240 318 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 61,000 NA NA NA Total manufacturing overhead cost $ 503,720 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 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 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 Total cost 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 Costs not assigned to products: Total cost

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9E: The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the...

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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	$	1,643,000
Cost of goods sold		1,230,620
Gross margin		412,380
Selling and administrative expenses		620,000
Net operating loss	$	(207,620)

Hi-Tek produced and sold 60,200 units of B300 at a price of $19 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	$	400,600		$	162,700	$	563,300
Direct labor	$	120,700		$	42,900		163,600
Manufacturing overhead							503,720
Cost of goods sold						$	1,230,620

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $104,000 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)		130,380		78		240		318
Product-sustaining (number of products)		101,200		1		1		2
Other (organization-sustaining costs)		61,000		NA		NA		NA
Total manufacturing overhead cost	$	503,720

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

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

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

Total cost

	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
Costs not assigned to products:


Total cost

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