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 $ 1,653,700 Cost of goods sold 1,234,323 Gross margin 419,377 Selling and administrative expenses 640,000 Net operating loss $ (220,623 )

Hi-Tek produced and sold 60,300 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 $ 400,500 $ 162,700 $ 563,200 Direct labor $ 120,800 $ 42,900 163,700 Manufacturing overhead 507,423 Cost of goods sold $ 1,234,323

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 $108,000 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) $ 200,823 90,500 62,800 153,300 Setups (setup hours) 144,400 71 290 361 Product-sustaining (number of products) 101,400 1 1 2 Other (organization-sustaining costs) 60,800 NA NA NA Total manufacturing overhead cost $ 507,423

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.