7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, L07-5] 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 $ 1,718,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating loss 1, 215, 768 502, 232 580,000 $ (77,768) 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 $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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400, 100 $ 120, 200 $ 162,500 $ 42,800 $ 562, 600 163, 000 490, 168 $ 1,215,768 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $102,000 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 $ 205, 288 123, 480 B300 90, 500 Activity T500 Total 62, 700 153, 200 74 220 294 101, 400 1 1 2 60,000 NA NA NA $ 490, 168 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. Required 1 Required 2 Required 3 Compute the product margins for the B300 and T500 under the company's traditional costing system. (Ro intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Product margin B300 T500 Total Required 1 Required 2 Required 3 Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) Product margin B300 T500 Total Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) Traditional Cost System Total cost assigned to products Total cost Amount B300 % of Amount B300 % of Amount Total Amount Amount Activity-Based Costing System Direct costs: Indirect costs: Total cost assigned to products Costs not assigned to products: Total cost T500 % of Total Amount T500 % of Total Amount Total Amount