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$1,707,200Cost of goods sold1,246,115Gross margin461,085Selling and administrative expenses610,000Net operating loss$(148,915)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,800 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:

B300T500TotalDirect materials$400,500$162,500$563,000Direct labor$120,600$42,500163,100Manufacturing overhead520,015Cost of goods sold$1,246,115

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 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:

Manufacturing

OverheadActivityActivity Cost Pool (and Activity Measure)B300T500TotalMachining (machine-hours)$206,95590,50062,800153,300Setups (setup hours)151,36072280352Product-sustaining (number of products)100,800112Other (organization-sustaining costs)60,900NANANATotal manufacturing overhead cost$520,015

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.