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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

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.

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