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###### PROBLEM 7-17 Comparing Traditional and Activity-Based PRODUCE MOTS VALVULNU Hi-Tek Manufacturing Inc, makes two types of...

PROBLEM 7-17 Comparing Traditional and Activity-Based PRODUCE MOTS VALVULNU 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 ....... Cost of goods sold ......... Gross margin .. Selling and administrative expenses Net operating loss... $2,100,000 1,600,000 500,000 550,000 $ (50,000) Hi-Tek produced and sold 70.00 af a price of $40 per unit. oduced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 units of TSCO of$40 per unit. The company's traditional cost system allocates manufacturing overhead s using a plantwide overhead rate and direct labor dollars as the allocation base. Addi- information relating to the company's two product lines is shown below: Activity Cost Pool (and Activity Measure) Manufacturing Overhead B300 T500 Tot 62,500 8300T500 Total 90,000 75 152,500 375 300 Machining (machine-hours) .............. Setups (setup hours) ................... Product-sustaining (number of products) Other (organization-sustaining costs) ...... Total manufacturing overhead cost ........ $436,300 $251,700 $200,000 $104,000 $213,500 157,500 120,000 117,000 $608,000 Direct materials Direct labor ... Manufacturing overhead .... Cost of goods sold ΝΑ. NA $ 688,000 304,000 608,000 $1,600,000 Required: 1. Using Exhibit 7-13 as Exhibit 7-13 as a guide, compute the product margins for the B300 and T500 under the The company has created an activity-based costing system to evaluate the profitability of its prod. ucts. 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 1500, 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: company's traditional costing system. 2. Using Exhibit 7-11 as a guide activity-based costing system. oit 7-11 as a guide, compute the product margins for B300 and 1500 under the cost assignments. Explam -14 as a guide, prepare a quantitative comparison of the traditional and activity-based ents. Explain why the traditional and activity-based cost assignments differ.

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