Hi-Tek produced and sold 60,300 units of B300 at a price of $21 per unit and...

 

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Hi-Tek produced and sold 60,300 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 $ 400,100 $ 162,900 $ 120,300 $ 42,800 Total $ 563,000 163,100 493,181 $ 1,219,281 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $110,000 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 Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Required: Manufacturing Overhead B300 Activity T500 Total $ 200,561 131,120 90,200 62,900 78 220 101,000 1 1 153,100 298 2 60,500 NA NA NA $ 493,181 1. Compute the product margins for 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 produced and sold 60,300 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 $ 400,100 $ 162,900 $ 120,300 $ 42,800 Total $ 563,000 163,100 493,181 $ 1,219,281 The company created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $110,000 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 Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Required: Manufacturing Overhead B300 Activity T500 Total $ 200,561 131,120 90,200 62,900 78 220 101,000 1 1 153,100 298 2 60,500 NA NA NA $ 493,181 1. Compute the product margins for 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.