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7 alue 5.00 points Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 Seling and administrative expenses Net $2,100,000 1,600,000 500,000 550,000 t operating loss $ (50,000) Hi-Tek produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 units of T500 at a price of $40 . 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: B300 $436,300 $251,700 $200,000 104,000 T500 Total Direct materials Direct labor Manufacturing overhead 688,000 304,000 608,000 Cost of goods sold $1,600,000 The company has created an activity-based costing system to evaluate the profitability of its products. 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 ad 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 Manufactur Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Overhead B300 T500 Total $213,500 90,000 62,500 152,500 75 375 157,500 120,000 117,000 NA NA NA Total manufacturing overhead cost $608,000