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$1,766,100Cost of goods sold1,222,524Gross margin543,576Selling and administrative expenses630,000Net operating loss$(86,424)

Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,600 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:

B300T500TotalDirect materials$400,300$162,900$563,200Direct labor$120,900$42,800163,700Manufacturing overhead495,624Cost of goods sold$1,222,524

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $59,000 and $106,000 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)$201,56490,10062,600152,700Setups (setup hours)131,46073240313Product-sustaining (number of products)101,600112Other (organization-sustaining costs)61,000NANANATotal manufacturing overhead cost$495,624

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.