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

$

1,768,200

Cost of goods sold

1,206,428

Gross margin

561,772

Selling and administrative expenses

590,000

Net operating loss

$

(28,228

)

Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,600 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

$

400,400

$

162,400

$

562,800

Direct labor

$

120,000

$

42,700

162,700

Manufacturing overhead

480,928

Cost of goods sold

$

1,206,428

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $60,000 and $104,000 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)	$	200,168		90,300	62,500	152,800
Setups (setup hours)		118,860		73	210	283
Product-sustaining (number of products)		101,200		1	1	2
Other (organization-sustaining costs)		60,700		NA	NA	NA
Total manufacturing overhead cost	$	480,928
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.