nectmheducation Saved Help Save E Che HiTek Manufacturing I

nect.mheducation Saved Help Save & E Che Hi-Tek Manufacturing,. Inc, makes two types of Industrial component parts-the 8300 and the T500. An absorplion statement for the most recent period is shown: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1,657,700 406,430 590,000 $ (183,570 Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,800 units or Ts00 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 Direct labor Manufacturing overhead Cost of goods sold 400,900 162,100563,000 s 120,400 42,500 162,900 525 370 1,251,270 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek\'s ABC Implementation team concluded that $50,000 and $107,000 of the company\'s advertising expenses could be directly traced to 8300 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:

Solution

1.

Working Note 1

Total Manufacturing overhead = $525370
Total Direct Labour Dollars = $ 162900

Overhead Rate per direct labour Dollar = $525370 / $ 162900 = $3.23

Product Margin Under traditional costing system

2.
Working Note -2
Calculation of Rate per Activity

Product Margin Under activity based costing system

3.
Contative comparison of the traditional and activity based cost assignments

	B300	T500	Total
Particulars	Units	Cost Per Unit	Total Amount	Units	Cost Per Unit	Total Amount
Sales	60300	$            19.00	$ 1,145,700.00	12800	$            40.00	$   512,000.00	$ 1,657,700.00
Direct Material			$      400,900.00			$   162,100.00	$      563,000.00
Direct Labour			$      120,400.00			$     42,500.00	$      162,900.00
Manufacturing Over Head			$      388,302.93			$   137,067.07	$      525,370.00
at 3.23 per direct labour Dollar
[See working Note 1]
Total Maufacturing Cost			$      909,602.93			$   341,667.07	$ 1,251,270.00
Product Margins			$      236,097.07			$   170,332.93	$      406,430.00