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 $1,716,000

Cost of goods sold 1,239,790

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Gross margin 476,210

Selling and administrative expenses 640,000

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Net operating loss $(163,790)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $40 per unit. The company's traditional cost system allocates manufacturing overhead to products using a plant wide 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 $401,000 $162,800 $563,800

Direct labor $120,600 $42,100 162,700

Manufacturing overhead 513,290

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Cost of goods sold $1,239,790

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 and $101,000 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:

Activity Cost Pool Manufacturing Overhead B300 T500 Total

Machining (machine-hours) $214,060 90,700 62,200 152,900

Setups (setup hours) 138,030 71 250 321

Product-sustaining (number of products) 101,200 1 1 2

Other (organization-sustaining costs) 60,000 NA NA NA

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Total manufacturing overhead cost $513,290

1. Help compute the product margins for the B300 and T500 under the company's traditional costing system.

2. Help compute the product margins for B300 and T500 under the activity-based costing system.

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