Hi-Tek Manufacturing, Incorporated, 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 Incorporated Income Statement Sales $ 1,708,000 Cost of goods sold 1,239,154 Gross margin 468,846 Selling and administrative expenses 620,000 Net operating loss $ (151,154) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 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 $ 400,600 $ 162,300 $ 562,900 Direct labor $ 120,800 $ 42,300 163,100 Manufacturing overhead 513,154 Cost of goods sold $ 1,239,154 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $58,000 and $106,000 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 Overhead Activity B300 T500 Total Machining (machine-hours) $ 205,154 90,300 62,800 153,100 Setups (setup hours) 146,700 76 250 326 Product-sustaining (number of products) 100,600 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 513,154 Required:

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.