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$1,765,500

Cost of goods sold1,222,195

Gross margin543,305

Selling and administrative expenses600,000

Net operating loss$(56,695)

Hi-Tek produced and sold 60,300 units of B300 at a price of $21 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:

B300 T500 Total

Direct materials . $400,200 . $162,800 . $563,000

Direct labor . $120,400 . $42,200 162,600 .

Manufacturing overhead 496,595

Cost of goods sold $1,222,195

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $54,000 and $107,000 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:

ActivityActivity Cost Pool (and Activity Measure)

Manufacturing Overhead

B300 T500 Total

Machining (machine-hours) $202,825 90,100 62,400 152,500

Setups (setup hours) 132,870 79 230 309

Product-sustaining (number of products)100,400 1 1 2

Other (organization-sustaining costs) 60,500 NA NA NA

Total manufacturing overhead cost . $496,595

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