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 1,225,936 Gross margin 409,364 Selling and administrative expenses 600,000 Net operating loss $ (190,636 ) 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 $ 400,300 $ 162,800 $ 563,100 Direct labor $ 120,800 $ 42,000 162,800 Manufacturing overhead 500,036 Cost of goods sold $ 1,225,936 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $50,000 and $103,000 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) $ 203,756 90,700 62,500 153,200 Setups (setup hours) 134,480 78 250 328 Product-sustaining (number of products) 101,200 1 1 2 Other (organization-sustaining costs) 60,600 NA NA NA Total manufacturing overhead cost $ 500,036

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.

	B300	T500	Total
Product margin			$0

	B300	T500	Total
Product margin			$0

	B300			T500			Total
		% of			% of
	Amount			Amount			Amount
Traditional Cost System
			%			%
			%			%
			%			%
Total cost assigned to products	$0			$0			$0
Total cost							$0
	B300			T500			Total
		% of			% of
	Amount	Total Amount		Amount	Total Amount		Amount
Activity-Based Costing System
Direct costs:
			%			%
			%			%
			%			%
Indirect costs:
			%			%
			%			%
			%			%
Total cost assigned to products	$0			$0			0
Costs not assigned to products:
Total cost							$0