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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

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 $ 1,705,300
Cost of goods sold 1,228,452
Gross margin 476,848
Selling and administrative expenses 630,000
Net operating loss $ (153,152)

Hi-Tek produced and sold 60,500 units of B300 at a price of $20 per unit and 12,700 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:

B300 T500 Total
Direct materials $ 400,700 $ 162,800 $ 563,500
Direct labor $ 120,100 $ 42,900 163,000
Manufacturing overhead 501,952
Cost of goods sold $ 1,228,452

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $52,000 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:

Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity
B300 T500 Total
Machining (machine-hours) $ 211,692 91,000 62,400 153,400
Setups (setup hours) 129,360 78 230 308
Product-sustaining (number of products) 100,600 1 1 2
Other (organization-sustaining costs) 60,300 NA NA NA
Total manufacturing overhead cost $ 501,952

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.

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