HiTek Manufacturing Inc makes two types of industrial compon

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 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,706,000 1,223,213 482,787 570,000 s (87,213) Hi-Tek produced and sold 60,300 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 T500 B300 $ 400,900 $ 120,700 Total Direct materials Direct labor Manufacturing overhead Cost of goods sold 162,600 $563,500 163,200 496,513 $ 1,223,213 42,500 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek\'s ABC implementation team concluded that $54,000 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: Activit T500 Manufacturing Overhead $ 209,473 124,740 101,800 30062 Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Total 90,800 62,100 152,900 220 297 60,500 NA NA NA $ 496,513 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 2Required 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

Solution

1. Compute the product margins for the B300 and T500 under the company\'s traditional costing system. Plantwide overhead rate = Estimated total mfg. cost / Estimated total DL $ PMOH Rate = $4,96,513 / $1,63,200 $3 per DLS B300 T500 Total Sales $12,06,000 $5,00,000 $17,06,000 Direct materials $4,00,900 $1,62,600 $5,63,500 Direct labor 1,20,700 42,500 1,63,200 Manufacturing overhead applied 3,67,213 1,29,300 4,96,513 Total manufacturing costs $8,88,813 $3,34,400 $12,23,213 Product margin (Traditional) $3,17,187 $1,65,600 $4,82,787 Note: All of the mfg. overhead costs is applied to each product based on direct labor dollars 2. Compute the product margins for the B300 and T500 under the activity-based costing system. Cost 1st Stage Cost Pool Pool Activity Driver Usage Pool Activity Cost Pool Driver Allocations B300 T500 Total Rates Machining MHr. $2,09,473 90,800 62,100 1,52,900 $1.370 Setups Setup Hrs. 1,24,740 77 220 297 $420 Product Sustaining # of Products 1,01,800 1 1 2 $50,900 Organizational Sustaining NA 60,500 NA NA NA Total Mfg. Overhead $4,96,513 B300 T500 Total Sales $12,06,000 $5,00,000 $17,06,000 Direct materials $4,00,900 $1,62,600 $5,63,500 Direct labor 1,20,700 42,500 1,63,200 Advertising expense 54,000 1,08,000 1,62,000 Mfg. Overhead assigned      Machining pool 1,24,396 85,077 2,09,473      Setup pool 32,340 92,400 1,24,740      Product sustaining 50,900 50,900 1,01,800 Total costs assigned $7,83,236 $5,41,477 $13,24,713 Product margin (ABC) $4,22,764 ($41,477) $3,81,287 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. B300 T500 Total Amount % of Amount % of Direct materials $4,00,900 71.1% $1,62,600 28.9% $5,63,500 Direct labor $1,20,700 74.0% $42,500 26.0% $1,63,200 Manufacturing overhead applied $3,67,213 74.0% $1,29,300 26.0% $4,96,513 Total manufacturing costs $8,88,813 $3,34,400 $12,23,213 Selling & administrative 5,70,000 Total Costs $17,93,213 Note: Total costs accounted for $17,93,213 B300 T500 Total Amount % of Amount % of Direct materials $4,00,900 71.1% $1,62,600 28.9% $5,63,500 Direct labor $1,20,700 74.0% $42,500 26.0% $1,63,200 Advertising expense $54,000 33.3% $1,08,000 66.7% $1,62,000 Mfg. Overhead assigned      Machining pool $1,24,396 59.4% $85,077 40.6% $2,09,473      Setup pool $32,340 25.9% $92,400 74.1% $1,24,740      Product sustaining $50,900 50.0% $50,900 50.0% $1,01,800 Total costs assigned $7,83,236 $5,41,477 $13,24,713 Selling & Administrative (Indirect) 4,08,000 Organizational Sustaining Costs 60,500 Total Costs $17,93,213