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

Hi$-$Tek Manufacturing, Incorporated

Income Statement

Sales $ $1,774,500$

Cost of goods sold $1,225,455$

Gross margin $549,045$

Selling and administrative expenses $630,000$

Net operating loss $ $(80,955)$

Hi$-$Tek produced and sold $60,500$ units of B$300$ at a price of $$21$ per unit and $12,600$ units of T$500$ at a price of $$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 $ $400,400$ $ $162,500$ $ $562,900$

Direct labor $ $120,200$ $ $42,600162,800$

Manufacturing overhead $499,755$

Cost of goods sold $ $1,225,455$

The company created an activity$-$based costing system to evaluate the profitability of its products. Hi$-$Tek$$s ABC implementation team concluded that $$55,000$ and $$108,000$ of the company$$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:

Activity Cost Pool $($and Activity Measure$)$ Manufacturing Overhead Activity

B$300$ T$500$ Total

Machining $($machine$-$hours$)$ $ $206,41590,50062,400152,900$

Setups $($setup hours$)132,84074250324$

Product$-$sustaining $($number of products$)100,400112$

Other $($organization$-$sustaining costs$)60,100$ NA NA NA

Total manufacturing overhead cost $ $499,755$

Required:

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

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

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