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 StatementSales $1,716,000

Cost of goods sold 1,234,769

Gross margin 481,231

Selling and administrative expenses 580,000

Net operating loss $(98,769)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 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

TotalDirect materials $400,900 $162,200 $563,100

Direct labor $120,900 $42,200 163,000

Manufacturing overhead 507,969

Cost of goods sold $1,234,769

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 $103,000 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:

Manufacturing Overhead

ActivityActivity Cost Pool (and Activity Measure) Overhead B300 T500 Total

Machining (machine-hours) $203,889 90,300 63,000 153,300

Setups (setup hours) 143,880 77 250 327

Product-sustaining (number of products) 100,000 1 1 2

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

Total manufacturing overhead cost $507,969

Required:

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.