Cost Accounting ACCT 605: Hi-Tek Manufacturing Inc.

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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.

 

 

    • 6 years ago
    Cost Accounting ACCT 605: Hi-Tek Manufacturing Inc.
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