Hi-Tek Manufacturing, Incorporated, makes two industrial component partsB300 and T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing, IncorporatedIncome StatementSales$ 1,751,400Cost of goods sold1,239,407Gross margin511,993Selling and administrative expenses560,000Net operating loss$ (48,007)

Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $39 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$ 401,000$ 162,500$ 563,500Direct labor$ 120,700$ 42,900163,600Manufacturing overhead512,307Cost of goods sold$ 1,239,407

The company created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $57,000 and $101,000 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:

Activity Cost Pool (and Activity Measure)Manufacturing OverheadActivityB300T500TotalMachining (machine-hours)$ 200,03790,60062,100152,700Setups (setup hours)150,47077290367Product-sustaining (number of products)101,600112Other (organization-sustaining costs)60,200NANANATotal manufacturing overhead cost$ 512,307

Required:

1. Compute the product margins for 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.