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 $ 1,705,200 Cost of goods sold
1,254,256 Gross margin 450,944 Selling and administrative expenses
590,000 Net operating loss $ (139,056 ) Hi-Tek produced and sold
60,300 units of B300 at a price of $20 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 $ 400,300 $
162,400 $ 562,700 Direct labor $ 120,600 $ 42,700 163,300
Manufacturing overhead 528,256 Cost of goods sold $ 1,254,256 The
company has created an activity-based costing system to evaluate
the profitability of its products. Hi-Tek’s ABC implementation team
concluded that $52,000 and $100,000 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) $
210,036 90,200 62,000 152,200 Setups (setup hours) 155,320 73 280
353 Product-sustaining (number of products) 102,000 1 1 2 Other
(organization-sustaining costs) 60,900 NA NA NA Total manufacturing
overhead cost $ 528,256 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.
