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 below:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,646,800
Cost of goods sold		1,228,576
Gross margin		418,224
Selling and administrative expenses		600,000
Net operating loss	$	(181,776)

Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,800 units of T500 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:

	B300		T500		Total
Direct materials	$	400,200	$	162,900	$	563,100
Direct labor	$	120,700	$	42,100		162,800
Manufacturing overhead						502,676
Cost of goods sold					$	1,228,576

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $60,000 and $102,000 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:

	Manufacturing		Activity
Activity Cost Pool (and Activity Measure)	Overhead		B300	T500	Total
Machining (machine-hours)	$	204,216	90,100	62,300	152,400
Setups (setup hours)		137,760	76	260	336
Product-sustaining (number of products)		100,200	1	1	2
Other (organization-sustaining costs)		60,500	NA	NA	NA
Total manufacturing overhead cost	$	502,676

Required

	1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.(Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollars.)

	2. Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)

  

Transcribed Image Text:

B300 T500 Total Product margin $ B300 T500 Total Product margin $