Compute the product margins for ex300 and tx500

Question

Precision Manufacturing Inc. (PMI) makes two types of industrial component parts-the EX300 and the TX500. An absorption costing income statement for the most recent period is shown below:

 

 

Precision Manufacturing Inc. Income Statement
Sales	$	1,637,200
Cost of goods sold		1,246,870
Gross margin		390,330
Selling and administrative expenses		550,000
Net operating loss	$	(159,670)

 

 

PMI produced and sold 60,100 units of EX300 at a price of $19 per unit and 12,700 units of TX500 at a price of $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:

 

 

	EX300		TX500		Total
Direct materials	$	400,000	$	162,100	$	562,100
Direct labor	$	121,000	$	42,200		163,200
Manufacturing overhead						521,570
Cost of goods sold					$	1,246,870

 

 

 

The company has created an activity-based costing system to evaluate the profitability of its products. PMI's ABC implementation team concluded that $55,000 and $110,000 of the company's advertising expenses could be directly traced to EX300 and TX500, 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		EX300	TX500	Total
Machining (machine-hours)	$	205,690	90,700	62,800	153,500
Setups (setup hours)		154,980	78	300	378
Product-sustaining (number of products)		100,600	1	1	2
Other (organization-sustaining costs)		60,300	NA	NA	NA
Total manufacturing overhead cost	$	521,570

 

 

Required

 

1.	Compute the product margins for the EX300 and TX500 under the company's traditional costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)

 

 

	EX300	TX500	Total
Product margin	$	$	$

 

 

2.	Compute the product margins for EX300 and TX500 under the activity-based costing system. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)

 

 

	EX300	TX500	Total
Product margin	$	$	$

 

 

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your percentage answers to one decimal place and other answers to the nearest dollar amount. Omit the "$" & "%" signs in your response.)