Hi$-$Tek Manufacturing, Inc., makes two types of industrial component parts$$the B$300$ and the T$500.$ An absorption costing income statement for the most recent period is shown:

Hi$-$Tek Manufacturing Inc.

Income Statement

Sales $ $2,100,000$

Cost of goods sold $1,600,000$

Gross margin $500,000$

Selling and administrative expenses $550,000$

Net operating loss $ $(50,000)$

Hi$-$Tek produced and sold $70,000$ units of B$300$ at a price of $$20$ per unit and $17,500$ units of T$500$ at a price of $$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:

B$300$ T$500$ Total

Direct materials $ $436,300$ $ $251,700$ $ $688,000$

Direct labor $ $200,000$ $ $104,000304,000$

Manufacturing overhead $608,000$

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 B$300$ and T$500,$ 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

Overhead Activity

Activity Cost Pool $($and Activity Measure$)$ B$300$ T$500$ Total

Machining $($machine$-$hours$)$ $ $213,50090,00062,500152,500$

Setups $($setup hours$)157,50075300375$

Product$-$sustaining $($number of products$)120,000112$

Other $($organization$-$sustaining costs$)117,000$ NA NA NA

Total manufacturing overhead cost $ $608,000$

Required:

$1.$ Compute the product margins for the B$300$ and T$500$ under the company$$s traditional costing system.

$2.$ Compute the product margins for B$300$ and T$500$ under the activity$-$based costing system.

$3.$ Prepare a quantitative comparison of the traditional and activity$-$based cost assignments.