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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

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 $ 1,659,600
Cost of goods sold $1,230,949
Gross margin 428,651
Selling and administrative expenses 570,000
Net operating loss $ (141,349 )

Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,800 units of T500 at a price of $40 per unit. The companys 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 companys two product lines is shown below:

B300 T500 Total
Direct Materials $ 400,700.00 $ 162,500.00 $ 563,200.00
Direct Labor $ 120,100.00 $ 42,500.00 $ 162,600.00
Manufacturing Overhead $ 505,149.00
Cost of goods sold $ 1,230,949.00

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $51,000 and $105,000 of the companys 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 companys manufacturing overhead to four activities as shown below:

Activity
Activity Cost Pool (and Activity Measure) Manufacturing Overhead B300 T500 Total
Machining (machine-hours) $ 212,809 $ 90,900.00 $ 62,200.00 $ 153,100.00
Setups (setup hours) $ 130,240 76 220 296
Product-sustaining (number of products) $ 101,200 1 1 2
Other (organization-sustaining costs) $ 60,900 NA NA NA
Total manufacturing overhead cost $ 505,149

Required:

1. Compute the product margins for the B300 and T500 under the companys 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.

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