Hi-Tek Manufacturing, Inc., makes two types of industrial component parts--the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,695,300 1,233,560 461, 740 560,000 $ (98,260) Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $39 per unit. The company's 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 company's two product lines is shown below: Total Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 $ 400,900 $ 162,900 $ 563,800 $ 120,400 $ 42,300 162,700 507,060 $ 1,233,560 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $107,000 of the company's advertising expense 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 company's manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 205,740 139,920 100,600 60,800 $ 507,060 Activity B300 T500 Total 90,400 62,000 152,400 78 240 318 1 2 NA NA NA 1 Required: 1. Compute the product margins for the B300 and T500 under the company's 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