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Category > Management Posted 05 Jun 2017 My Price 15.00

Hi-Tek Manufacturing Inc. makes two types of industrial component parts

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 $ 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 B300 at a price of $20 per unit 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 information relating to the company’s two product lines is shown below:

 

  B300 T500 Total
Direct materials $ 436,300 $ 251,700 $ 688,000
Direct labor $ 200,000 $ 104,000   304,000
Manufacturing overhead           608,000
         
Cost of goods sold         $ 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 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) $ 213,500 90,000 62,500 152,500
Setups (setup hours)   157,500 75 300 375
Product-sustaining (number of products)   120,000 1 1 2
Other (organization-sustaining costs)   117,000 NA NA NA
 
     
Total manufacturing overhead cost $ 608,000      
 
     

 

Required

 

1.

Compute the product margins for the B300 and T500 under the company’s traditional costing system.

 

Answers

Maurice Tutor
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Status NEW Posted 05 Jun 2017 08:06 PM My Price 15.00

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