Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts—the B300 and the T500. An absorption c

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Hi-Tek Manufacturing, Incorporated, 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 produced and sold 60,500 units of B300 at a price of $19
per unit and 12,700 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:
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:
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.

Hi Tek Manufacturing Incorporated Makes Two Types Of Industrial Component Parts The B300 And The T500 An Absorption C 1 (30.94 KiB) Viewed 86 times

B300 T500 Total Amount % of Total Amount % of Total Amount Amount Amount $ 71.1 $ 400,200 120,300 55,000 162,500 42,400 107.000 28.9 $ 26.1 73.9 562,700 162,700 162,000 122,175 59.0 84,780 41.0 206,955 Activity-Based Costing System Direct costs: Direct materials Direct labor Advertising expense Indirect costs: Machining Setups Product sustaining Total cost assigned to products Costs not assigned to products: Selling and administrative Other Total cost 21.1 78.9 31,500 50,300 779,475 50.0 117,600 50,300 564,580 50.0 149,100 100,600 1,344,055 $ $ $ 478,000 60,100 1,882, 155 FA < Required 2 Required 3 >