E connect ACCOUNTING et Margins [L01, LO3, L04, L05] PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins (LOL Hi-Tek Manufacturing Inc. makes two types of industrial component parts 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 . . . . . . $2,100,000 1,600,000 500,000 550,000 $ (50,000 Net operating loss........ Activity-Based Costing: A Tool to Aid Decision Making Tek produced and sold 70.00 w price of $40 per unit. The m products using a plantwide al information relating to th old 70.000 units of B300 at a price of S20 per unit and 17,500 units of T500 mit The company s traditional cost system allocates manufacturing overhead wide overhead rate and direct labor dollars as the allocation base. Addi lating to the company stwo product lines is shown below Direct materials ..... Direct labor .. Manufacturing overhead .. Cost of goods sold B300 $436,300 $200,000 T500 $251,700 $104,000 Total $ 688,000 304,000 608,000 $1,600,000 nany has created an activity-based costing system to evaluate the profitability of its prod- 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 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 Activity Cost Pool (and Activity sure) Machining (machine-hours). Setups (setup hours) Product-sustaining (number of products) .... Other (organization-sustaining costs) ...... Total manufacturing overhead cost........ Manufacturing Overhead $213,500 157,500 120,000 117,000 $608,000 B300 90,000 75 Total 152,500 T500 62,500 300 375 NA NA Required: 1. Using Exhibit 7-12 as a company's traditional costing system. bit 7-12 as a guide, compute the product margins for the B300 and T500 under the 2. Using Exhion activity-based costing system. -10 as a guide, compute the product margins for B300 and T500 under the 3. Using Exhibit 7-13 as a guid cost assignments. Explain PROM as a guide, prepare a quantitative comparison of the traditional and activity-based 18. Explain why the traditional and activity-based cost assignments differ