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 $ 1,757,400

Cost of goods sold 1,234,204

Gross margin 523,196

Selling and administrative expenses 560,000

Net operating loss $ (36,804 )

Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,700 units of T500 at a price of $39 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 $ 400,500 $ 162,400 $ 562,900

Direct labor $ 120,600 $ 42,800 163,400

Manufacturing overhead 507,904

Cost of goods sold $ 1,234,204

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $102,000 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 Activity

Activity Cost Pool (and Activity Measure) B300 T500 Total

Machining (machine-hours) $ 207,944 90,000 62,900 152,900

Setups (setup hours) 137,760 76 260 336

Product-sustaining (number of products) 101,800 1 1 2

Other (organization-sustaining costs) 60,400 NA NA NA

Total manufacturing overhead cost $ 507,904

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. show a quantitative comparison of the traditional and activity-based cost assignments.