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 $1,718,000

Cost of goods sold 1,227,421

Gross margin 490,579

Selling and administrative expenses 640,000

Net operating loss $(149,421)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,800 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

Direct materials $400,600 $162,200 $562,800

Direct labor $120,700 $42,100 162,800

Manufacturing overhead 501,821

Cost of goods sold $1,227,421

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 $108,000 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) $210,021 90,400 62,900 153,300

Setups (setup hours) 129,600 74 250 324

Product-sustaining (number of products) 101,400 1 1 2

Other (organization-sustaining costs) 60,800 NA NA NA

Total manufacturing overhead cost $501,821

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