Hi$-$Tek Manufacturing, Incorporated, 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 Incorporated Income Statement

Sales $ $1,720,000$

Cost of goods sold $1,209,308$

Gross margin $510,692$

Selling and administrative expenses $640,000$

Net operating loss $ $(129,308)$

Hi$-$Tek produced and sold $60,400$ units of B$300$ at a price of $$20$ per unit and $12,800$ units of T$500$ at a price of $$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 $ $400,400$ $ $162,400$ $ $562,800$

Direct labor $ $120,000$ $ $42,900162,900$

Manufacturing overhead $483,608$

Cost of goods sold $ $1,209,308$

The company has 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$)$ $ $200,16890,20062,600152,800$

Setups $($setup hours$)122,64072220292$

Product$-$sustaining $($number of products$)100,600112$

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

Total manufacturing overhead cost $ $483,608$

Required:

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

Please explain step by step. Thank you.

This is an example of a quantitative comparison. In this comparison, we list the total product costs for each product under each costing system, and express them as a percentage of the total allocated cost to illustrate the difference the choice of costing methods makes:

Quantitative comparison of the traditional and activity$-$based cost systems

B$300$ T$500$ Total

Amount Percentage of total Amount Percentage of total

Traditional cost system:

Direct materials $$401,00045\mathrm{.}07\%$ $$162,40048\mathrm{.}65\%$ $$563,400$

Direct labor $$120,90013\mathrm{.}59\%$ $$42,40012\mathrm{.}70\%$ $$163,300$

Manufacturing overhead $$367,78241\mathrm{.}34\%$ $$128,98238\mathrm{.}64\%$ $$496,764$

Total cost assigned $$889,682100\mathrm{.}00\%$ $$333,782100\mathrm{.}00\%$ $$1,223,464$

Selling and administrative expenses $$560,000$

Total cost $$1,783,464$

Activity$-$Based system:

Direct materials $$401,00054\mathrm{.}98\%$ $$162,40037\mathrm{.}45\%$ $$563,400$

Direct labor $$120,90016\mathrm{.}58\%$ $$42,4009\mathrm{.}78\%$ $$163,300$

Manufacturing overhead $$207,42828\mathrm{.}44\%$ $$228,83652\mathrm{.}77\%$ $$436,264$

Total cost assigned $$729,328100\mathrm{.}00\%$ $$433,636100\mathrm{.}00\%$ $$1,162,964$

Selling and administrative expenses $$560,000$

Organization$-$sustaining overhead $$60,500$

Total cost $$1,783,4$