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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 $ 1,706,000
Cost of goods sold 1,248,263
Gross margin 457,737
Selling and administrative expenses 610,000
Net operating loss $ (152,263)

Hi-Tek produced and sold 60,100 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 $ 400,200 $ 162,100 $ 562,300
Direct labor $ 120,400 $ 42,000 162,400
Manufacturing overhead 523,563
Cost of goods sold $ 1,248,263

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $53,000 and $105,000 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) $ 199,513 90,100 62,200 152,300
Setups (setup hours) 161,550 79 280 359
Product-sustaining (number of products) 101,600 1 1 2
Other (organization-sustaining costs) 60,900 NA NA NA
Total manufacturing overhead cost $ 523,563

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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