Hi-Tek Manufacturing Inc. makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown below:
Hi-Tek Manufacturing Inc.
Income Statement
Sales$2,100,000
Cost of goods sold1,600,000
Gross margin500,000
Selling and administrative expenses550,000
Net operating loss$(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 companys 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 companys two product lines is shown below:
B300T500Total
Direct materials$436,300$251,700$688,000
Direct labor$200,000$104,000304,000
Manufacturing overhead608,000
Cost of goods sold$1,600,000
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $50,000 and $100,000 of the companys 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 companys manufacturing overhead to four activities as shown below:
Manufacturing
Activity
Activity Cost Pool (and Activity Measure)OverheadB300T500Total
Machining (machine-hours)$213,50090,00062,500152,500
Setups (setup hours)157,50075300375
Product-sustaining (number of products)120,000112
Other (organization-sustaining costs)117,000NANANA
Total manufacturing overhead cost$608,000
Required
1.
Compute the product margins for the B300 and T500 under the companys traditional costing system.