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:

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Hi$-$Tek Manufacturing Incorporated

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 $ $(50,000)$

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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:

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$$ 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 $ $1,600,000$

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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:

$$

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

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 $ $608,000$

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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.