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Comparing Traditional and Activity-Based Product Margins

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: 50 points Skipped ні-те Inc ne Stat cent Sales $1,755,900 1,221,475 Cost of goods sold Gross margin Selling and administrative expenses eBook Net operating loss (65,575) Print Hi-Tek produced and sold 60,400 units of B300 for $21 per unit and 12,500 units of T500 at $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:

References T500 B300 40 0 Total Direct materials Direct labor Manufacturing overhead 00 .600 163,100 495,775 $120,700 s 42,400 $1,221,475 Cost of goods sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $55,000 and $107,000 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 $ 207,225 126,450 101,400 60,700 Activity T500 в300 Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other organization-sustaining costs) Total 90,700 62,800 210 153,500 281 71 1 1 NA NA NA $ 495,775 Total manufacturing overhead cost 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 2 Required 1 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. Get Accounting Homework Help Today