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	$	1,772,200
Cost of goods sold		1,258,123
Gross margin		514,077
Selling and administrative expenses		640,000
Net operating loss	$	(125,923	)

Hi-Tek produced and sold 60,200 units of B300 at a price of $21 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:

B300T500TotalDirect materials$400,500$162,600$563,100Direct labor$120,700$42,900 163,600Manufacturing overhead 531,423Cost of goods sold $1,258,123

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 $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)	$	212,253		90,700	62,000	152,700
Setups (setup hours)		158,670		79	290	369
Product-sustaining (number of products)		100,200		1	1	2
Other (organization-sustaining costs)		60,300		NA	NA	NA
Total manufacturing overhead cost	$	531,423

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.