Hi-Tek Manufacturing, Inc., makes two types of industrialcomponent partsâthe B300 and the T500. An absorption costing incomestatement for the most recent period is shown:
|Hi-Tek Manufacturing Inc.
|Cost of goods sold||1,222,415|
|Selling and administrativeexpenses||590,000|
|Net operating loss||$||(108,415||)|
Hi-Tek produced and sold 60,000 units of B300 at a price of $20per unit and 12,600 units of T500 at a price of $40 per unit. Thecompanyâs traditional cost system allocates manufacturing overheadto products using a plantwide overhead rate and direct labordollars as the allocation base. Additional information relating tothe companyâs two product lines is shown below:
|Cost of goods sold||$||1,222,415|
The company has created an activity-based costing system toevaluate the profitability of its products. Hi-Tekâs ABCimplementation team concluded that $57,000 and $108,000 of thecompanyâs advertising expenses could be directly traced to B300 andT500, respectively. The remainder of the selling and administrativeexpenses was organization-sustaining in nature. The ABC team alsodistributed the companyâs manufacturing overhead to four activitiesas shown below:
|Activity Cost Pool (and ActivityMeasure)||B300||T500||Total|
|Setups (setup hours)||126,420||71||230||301|
|Product-sustaining (number ofproducts)||101,800||1||1||2|
|Total manufacturing overheadcost||$||496,315|
1. Compute the product margins for the B300 and T500 under thecompanyâs traditional costing system.
2. Compute the product margins for B300 and T500 under theactivity-based costing system.
3. Prepare a quantitative comparison of the traditional andactivity-based cost assignments.
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