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

| October 3, 2018

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 StatementSales$2,100,000Cost of goods sold1,600,000Gross margin500,000Selling and administrative expenses550,000Net operating loss$(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:B300T500TotalDirect materials$436,300$251,700$688,000Direct labor$200,000$104,000304,000Manufacturing overhead608,000Cost of goods sold$1,600,000The 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:ManufacturingActivityActivity Cost Pool (and Activity Measure)OverheadB300T500TotalMachining (machine-hours)$213,50090,00062,500152,500Setups (setup hours)157,50075300375Product-sustaining (number of products)120,000112Other (organization-sustaining costs)117,000NANANATotal manufacturing overhead cost$608,000Required1.Compute the product margins for the B300 and T500 under the company’s traditional costing system.

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