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Chapter 6. Problem 16P 1 Bookmark Show all steps Problem Comparing Traditional and Activity-Based Product Margins Hi-Tek Manufacturing Inc makes two types of industrial component parts--the B300 and T500. An absorption costing income statement for the most recent period is shown below HI-Tek Manufacturing Inc Income Statement Sales $2,100,000 Cost of goods sold 1.600,000 Gross margin 500,000 Selling and administrative expenses 550.000 Net operating loss $ (50,000) Hi-Tek produced and sold 70,000 units of 8300 at a price of 520 per unt and 17,500 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 inforgation relating to the company's two product lines is shown below 3300 T500 Total Direct materials. Direct labor Manufacturing overhead.. Cost of goods sold .. $436,300 $251.700 5688.000 $200.000 $104.000 304,000 608.000 51.600.000 The company has created an activity-based costing system to evaluate the profitabaty of its products Hi-Teks ABC implementation team concluded that $50,000 and $100.000 the company's advertising expenses could be directly traced to 3300 and T500, respectively. The remainder of the selling and administrative expenses was organization susting in nature The ABC team also distributed the company's manufacturing overhead to four activitas shown below AL TRO My Cost pool and Activity Me) PODO B300 T500 Total $436,300 $251,700 $200,000 $104,000 Direct materials. Direct labor Manufacturing overhead Cost of goods sold $ 688,000 304,000 608,000 $1,600,000 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $50.000 and $100,000 o 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 T500 B300 Total 90,000 Manufacturing Overhead $213,500 157.500 120,000 117.000 S608,000 62,500 300 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 75 152.500 375 2 NA 1 NA NA Required: 1. Using Exhibit 6-13 as a guide compute the product margins for the B300 and 7500 under the company's traditional costing system 2 Using Exhibit 6-11 as a guide, compute the product margins for B300 and T500 under the activity-based costing system 3. Using Exhibit 6-14 as a guide, prepare a quantitative companson of the traditional and activitybased cost assignments Explain why the traditional and activity-based cost assgnments Step-by-step nolution