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 $ 1,753,500 Cost of goods sold 1,243,360 Gross margin 510,140 Selling and administrative expenses 590,000 Net operating loss $ (79,860 )

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 $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 $ 401,000 $ 163,000 $ 564,000 Direct labor $ 120,400 $ 42,400 162,800 Manufacturing overhead 516,560 Cost of goods sold $ 1,243,360

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $51,000 and $109,000 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) $ 205,020 90,100 62,900 153,000 Setups (setup hours) 150,040 71 270 341 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 516,560

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