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 $ 1,648,000 Cost of goods sold 1,221,504 Gross margin 426,496 Selling and administrative expenses 630,000 Net operating loss $ (203,504 ) 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 $40 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 $ 162,700 $ 562,900 Direct labor $ 120,100 $ 42,600 162,700 Manufacturing overhead 495,904 Cost of goods sold $ 1,221,504 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $53,000 and $101,000 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) $ 205,154 90,900 62,200 153,100 Setups (setup hours) 129,150 75 240 315 Product-sustaining (number of products) 101,000 1 1 2 Other (organization-sustaining costs) 60,600 NA NA NA Total manufacturing overhead cost $ 495,904 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.