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 $ $1,712,000$

Cost of goods sold $1,255,320$

Gross margin $456,680$

Selling and administrative expenses $610,000$

Net operating loss $ $(153,320)$

Hi$-$Tek produced and sold $60,400$ units of B$300$ at a price of $$20$ per unit and $12,600$ units of T$500$ at a price of $$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 $ $400,900$ $ $162,100$ $ $563,000$

Direct labor $ $120,500$ $ $42,500163,000$

Manufacturing overhead $529,320$

Cost of goods sold $ $1,255,320$

The company created an activity$-$based costing system to evaluate the profitability of its products. Hi$-$Tek$$s ABC implementation team concluded that $$54,000$ and $$109,000$ of the company$$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$)$ $ $198,77090,20062,700152,900$

Setups $($setup hours$)168,75075300375$

Product$-$sustaining $($number of products$)101,600112$

Other $($organization$-$sustaining costs$)60,200$ NA NA NA

Total manufacturing overhead cost $ $529,320$

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.