.

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

Hi-Tek Manufacturing Inc.Income Statement

Sales$1,718,000

Cost of goods sold1,240,988

Gross margin477,012

Selling and administrative expenses560,000

Net operating loss$(82,988)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,800 units of T500 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:

B300 T500 Total

Direct materials$400,200 $162,600 $562,800

Direct labor $120,100 $43,000 163,100

Manufacturing overhead 515,088

Cost of goods sold $1,240,988

The company has 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 B300 and T500, 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 Manufacturing Overhead Activity

(and Activity Measure) B300 T500 Total

Machining (machine-hours) $208,788 90,300 62,100 152,400

Setups (setup hours) 144,400 71 290 361

Product-sustaining (number of products)101,000 1 1 2

Other (organization-sustaining costs) 60,900 NA NA NA

Total manufacturing overhead cost $515,088

1. Compute the product margins for the B300 and T500 under the company's 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.