Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]

Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5) 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: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,697,400 1,230,862 466, 538 600,000 $ (133, 462) HI-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,600 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: D300 $ 400,700 $ 120, 400 T500 $ 162,800 $ 42.400 $ Direct materials Direct labor Manufacturing overhead Cost of goods sold Total 563,500 162.800 504,562 1.230,862 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $109,000 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 Overhead $ 202,092 141,470 100,600 60,400 $ 504,562 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 Activity 3300 500 Total 90,100 63.000 153.100 79 250 329 1 NA NA Required: 1. Compute the product margins for the 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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 answers to the nearest whole dollar amount.) B300 T500 Total Product margin S 0 R ed 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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.) B300 T 500 Total Product margin Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 Total % of % of Amount Amount Amount Traditional Cost System % Total cost assigned to products S 0 $ 0 Total cost B300 T500 Total % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Indirect costs: Total cost assigned to products Costs not assigned to products