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$1,640,900Cost of goods sold1,252,740Gross margin388,160Selling and administrative expenses630,000Net operating loss$(241,840)

Hi-Tek produced and sold 60,500 units of B300 at a price of $19 per unit and 12,600 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$401,000$162,100$563,100Direct labor$120,700$42,200162,900Manufacturing overhead526,740Cost of goods sold$1,252,740

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 $104,000 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)$198,64090,10062,700152,800Setups (setup hours)166,50080290370Product-sustaining (number of products)101,400112Other (organization-sustaining costs)60,200NANANATotal manufacturing overhead cost$526,740

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