Hi$-$Tek Manufacturing, Incorporated, makes two types of industrial component parts$—$the B$300$ and the T$500.$ An absorption costing income statement for the most recent period is shown:

Hi$-$Tek Manufacturing Incorporated Income Statement

Sales $ $1,703,300$

Cost of goods sold $1,237,040$

Gross margin $466,260$

Selling and administrative expenses $640,000$

Net operating loss $ $(173,740)$

Hi$-$Tek produced and sold $60,400$ units of B$300$ at a price of $$20$ per unit and $12,700$ units of T$500$ at a price of $$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:

B$300$ T$500$ Total

Direct materials $ $400,800$ $ $162,200$ $ $563,000$

Direct labor $ $120,500$ $ $42,400162,900$

Manufacturing overhead $511,140$

Cost of goods sold $ $1,237,040$

The company has created an activity$-$based costing system to evaluate the profitability of its products. Hi$-$Tek$’$s ABC implementation team concluded that $$55,000$ and $$105,000$ of the company$’$s advertising expenses could be directly traced to B$300$ and T$500,$ 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 Cost Pool $($and Activity Measure$)$ Manufacturing Overhead Activity

B$300$ T$500$ Total

Machining $($machine$-$hours$)$ $ $211,14090,70062,300153,000$

Setups $($setup hours$)138,40076270346$

Product$-$sustaining $($number of products$)101,400112$

Other $($organization$-$sustaining costs$)60,200$ NA NA NA

Total manufacturing overhead cost $ $511,140$ 

Required:

Prepare a quantitative comparison of the traditional and activity$-$based cost assignments note $($answers in picture are correct for question$)$Required $2$

Required $3$

 

Transcribed Image Text:

Amount Traditional Cost System Direct labor $ 120,500 Direct materials 400,800 Manufacturing overhead Total cost assigned to products Selling and administrative Total cost Activity-Based Costing System Direct costs: Direct labor Direct materials Indirect costs: % of % of Total Amount Amount $ 42,400 162,200 511,140 521,300 $ 204,600 $ 511,140 511,140 B300 T500 % of % of Total Amount Amount Total Amount Amount Total Amount $ 120,500 $ 42,400 400,800 162,200 Machining Product sustaining Setups Total cost assigned to products $ 521,300 $ 204,600 Costs not assigned to products: Selling and administrative Other Total cost < Required 2 Required 3 > 0 $ 0 Amount Traditional Cost System Direct labor $ 120,500 Direct materials 400,800 Manufacturing overhead Total cost assigned to products Selling and administrative Total cost Activity-Based Costing System Direct costs: Direct labor Direct materials Indirect costs: % of % of Total Amount Amount $ 42,400 162,200 511,140 521,300 $ 204,600 $ 511,140 511,140 B300 T500 % of % of Total Amount Amount Total Amount Amount Total Amount $ 120,500 $ 42,400 400,800 162,200 Machining Product sustaining Setups Total cost assigned to products $ 521,300 $ 204,600 Costs not assigned to products: Selling and administrative Other Total cost < Required 2 Required 3 > 0 $ 0