MBA515 Homework 5

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. Income Statement
Sales	$	1,704,000
Cost of goods sold		1,232,520
Gross margin		471,480
Selling and administrative expenses		560,000
Net operating loss	$	(88,520	)

 

Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,500 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	$	400,800	$	162,200	$	563,000
Direct labor	$	120,700	$	42,200		162,900
Manufacturing overhead						506,620
Cost of goods sold					$	1,232,520

 

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 $107,000 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 Overhead	Activity
Activity Cost Pool (and Activity Measure)		B300	T500	Total
Machining (machine-hours)	$	208,080		91,000	62,000	153,000
Setups (setup hours)		136,740		78	240	318
Product-sustaining (number of products)		101,400		1	1	2
Other (organization-sustaining costs)		60,400		NA	NA	NA
Total manufacturing overhead cost	$	506,620

 

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Complete this question by entering your answers in the tabs below.

· Required 1

· Required 2

· Required 3

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 answers to the nearest whole dollar amount.)

	B300 T500 Total Product margin $0

Complete this question by entering your answers in the tabs below.

· Required 1

· Required 2

· Required 3

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 $0

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)

	B300 T500 Total % of % of Amount Amount Amount Traditional Cost System % % % % % % Total cost assigned to products $0 $0 $0 Total cost $0 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 $0 $0 0 Costs not assigned to products: Total cost $0