Hi -Tek Manufacturing Inc makes two types of industrial component parts - B300 and the T500. An absorption costing income Statement for the most recent period is shown:

Hi tek manufacturing inc Income statement

Sales = $1,703,300

Cost of goods sold 1,240,820

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Gross Margin 462,480

Selling and Administrative expenses 610,000

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Net operating loss (147,520)

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 produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $39 per unit. The companys 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 companys two product lines is shown below:

B300 T500 Total

Direct Materials: 400,600 162,900 563,500

Direct Labor: 120,100 43,000 163,100

Manufacturing Overhead: 514,220

Cost of Goods Sold 1,240,820

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $57,000 and $101,000 of the companys 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 companys manufacturing overhead to four activities as shown below:

Manufacturing				Activity
Activity Cost Pool (and Activity Measure)	Overhead					B300			T500			Total
Machining (machine-hours)	$	206,820				90,800			62,400			153,200
Setups (setup hours)		146,400				76			290			366
Product-sustaining (number of products)		100,000				1			1			2
Other (organization-sustaining costs)		61,000				NA			NA			NA
Total manufacturing overhead cost	$	514,220

1. Compute the product margins for the B300 and T500 under the companys 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