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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 $ 1,759,200
Cost of goods sold 1,235,292
Gross margin 523,908
Selling and administrative expenses 640,000
Net operating loss $ (116,092)

Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,800 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 $ 400,500 $ 162,700 $ 563,200
Direct labor $ 120,900 $ 42,200 163,100
Manufacturing overhead 508,992
Cost of goods sold $ 1,235,292

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $51,000 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) $ 202,692 90,100 62,300 152,400
Setups (setup hours) 146,200 70 270 340
Product-sustaining (number of products) 100,000 1 1 2
Other (organization-sustaining costs) 60,100 NA NA NA
Total manufacturing overhead cost $ 508,992

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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