Hi-Tek Manufacturing Inc. makes two types of industrial component parts - the B300 and the T500. An absorption costing income statement for the most recent period below;

Sales $2,100,000

Cost of Goods Sold $1,600,000

Gross Margin $500,000

Selling and Admin Exp $550,000

Net Oper Loss (50,000)

Hi Tek produced and sold 70k units of B300 at a price of $20 per unit and 17,500 units of T500 at a price of $40 per unit. The company's traditional costing 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 shown below

B300 T500 Total

Direct Materials 436,300 251,700 688,000

Direct Labor 200,000 104,000 304,000

Manufaturing Ovrhd 608,000

Cost of Goods Sold 1,600,000

The company has created an activity based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $50,000 and 100,000 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(and Activity measure) Manufacturing Overhead Activity B300 T500 Total

Machining (Machine Hours) 213,500 90,000 62,500 152,500

Setups (setup hours) 157,500 75 300 375

Product sustaining (#of Products) 120,000 1 1 2

Other (Org sustaining costs) 117,000 NA NA NA

Total Mfg Overhead cost 608,000

QUESTIONS BELOW

1. Using 6-13 as a guide, compute the product margins for the B300 and T500 under company's tradtional costing system.

2. Using 6-11 compute the product margins for B300 and T500 under activity based costing system.