Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the B300 and the T500. An absorption…
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Question “Hi-Tek Manufacturing, Inc., makes two types of industrial component parts-the B300 and the T500. An absorption…”
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 $ 1.774. See 1, 223.363 638, cee (78.863) Hi-Tek produced and sold 60,500 units of B300 at a price of $21 per unit and 12,600 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: B380T5e8 $ 400,600 $ 162,800 $ 120,400 $ 42,400 $ Direct materials Direct labor Manufacturing overhead Cost of goods sold Total 563,400 1 62,800 497.163 1,223,363 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $59,000 and $103,000 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: Activity B300 T500 Totke 90,500 62.600 153.100 Manufacturing Overhead $ 203,623 132.440 100.4ee 60.700 $492.163 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 Jes 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.
Answer
Calculation of product margin in the traditional system | ||
B300 | T500 | |
Sales Revenue | 1,270,500.00 | 504,000.00 |
Direct Material | 400,600.00 | 162,800.00 |
Direct Labor | 120,400.00 | 42,400.00 |
Overhead | 367,680.74 | 129,482.26 |
Product Margin | 381,819.26 | 169,317.74 |
Unter ABC | ||
B300 | T500 | |
Sales Revenue | 1,270,500.00 | 504,000.00 |
Direct Material | 400,600.00 | 162,800.00 |
Direct Labor | 120,400.00 | 42,400.00 |
Overhead | ||
Machining | 120365 | 83258 |
Installation | 33540 | 98900 |
Product Sustainability | 50200 | 50200 |
Margin for Product | 545,395.00 | 66,442.00 |
Comparative | ||
B300 | T500 | |
Margin below Traditional Costing | 381,819.26 | 169,317.74 |
Margin under ABC Costing | 545,395.00 | 66,442.00 |
Different | -163,575.74 | 102,875.74 |
=C4 1 Calculation of product margin under traditional system 2 B300 T500 3 Sales Revenue =60500*21 =12600*40 4 Direct Material 400600 162800 5 Direct Labor 120400 42400 6 Overhead =497163*B5/SUM(B5:05)=497163*C5/SUM(B5:05) 7 Product Margin =B3-SUM(B4:36) =C3-SUM(C4:06) 8 9 Under ABC 10 B300 T500 11 Sales Revenue I=B3 I=C3 12 Direct Material =B4 13 Direct Labor I=B5 I=C5 14 Overhead 15 Machining 1=203623*90500/153100 =203623*62600/153100 16 Setups =132440*78/308 =132440*230/308 17 Product Sustaining =100400*1/2 1=100400*1/2 18 Product Margin =B11-SUM(B12:B17) =C11-SUM(C12:C17) 19 20 Comparison 21 B300 T500 22 Margin under Traditional Costing =B7 =C7 23 Margin under ABC Costing =B18 =C18 24 Difference =B22-B23 =C22-C23
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