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

$

1,635,300

Cost of goods sold

1,226,668

Gross margin

408,632

Selling and administrative expenses

640,000

Net operating loss

$

(231,368

)

Hi-Tek produced and sold 60,000 units of B300 at a price of $19 per unit and 12,700 units of T500 at a price of $39 per unit. The companys 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 companys two product lines is shown below:

B300

T500

Total

Direct materials

$

400,200

$

162,100

$

562,300

Direct labor

$

120,700

$

42,200

162,900

Manufacturing overhead

501,468

Cost of goods sold

$

1,226,668

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $58,000 and $102,000 of the companys 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 companys manufacturing overhead to four activities as shown below:

	Manufacturing Overhead			Activity
Activity Cost Pool (and Activity Measure)				B300	T500	Total
Machining (machine-hours)	$	208,788		90,200	62,200	152,400
Setups (setup hours)		131,580		76	230	306
Product-sustaining (number of products)		100,200		1	1	2
Other (organization-sustaining costs)		60,900		NA	NA	NA
Total manufacturing overhead cost	$	501,468
Required: 1. Compute the product margins for the B300 and T500 under the companys traditional costing system. 2. Compute the product margins for B300 and T500 under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.