7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown: Sales Hi-Tek Manufacturing Incorporated Income Statement Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,705,300 1,249,670 455,630 550,000 $ (94,370) Hi-Tek produced and sold 60,500 units of B300 at a price of $20 per unit and 12,700 units of T500 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. Direct materials Direct labor Manufacturing overhead Cost of goods sold 8300 $ 400,100 $ 120,500 T500 $ 162,200 $ 42,800 Total $562,300 163,300 524,070 $ 1,249,670 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC Implementation team concluded that $58,000 and $106,000 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 Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Required: Manufacturing Overhead $206,010 Activity 7500 8300 90,100 62,500 Total 152,600 155,760 74 280 101,600 1 1 354 2 60,700 NA NA NA $ 524,070 1. Compute the product margins for the B300 and T500 under the company's traditional costing system. 2: Compute the product margins for B300 and T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments