Hi-Tek Manufacturing, Incorporated, 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 Incorporated Income Statement Sales $ 1,703, 300 Cost of goods sold 1,225,425 Gross margin 477,875 Selling and administrative expenses 560,000 Net operating loss $ (82, 125) Hi-Tek produced and sold 60,400 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: B300 T500 Total Direct materials $ 401,000 $ 162,500 $ 563,500 Direct labor $ 120,100 $ 42,200 162,300 Manufacturing overhead 499,625 Cost of goods sold $ 1,225,425 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $54,000 and $107.000 of the company's 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 company's manufacturing overhead to four activities as shown below: Manufacturing Activity Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 202,825 90,000 62,500 152,500 Setups (setup hours) 135,200 78 260 Product-sustaining number of products) 101,200 Other (organization-sustaining costs) 60,400 NA NA NA Total manufacturing overhead cost $ 499,625 Required: 1. Compute the product margins for the 8300 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. 338 1 1 2