Precision Manufacturing Inc. (PMI) makes two types of industrial component partsthe EX300 and the TX500. An absorption costing income statement for the most recent period is shown below:

Precision Manufacturing Inc. Income Statement
Sales	$	1,700,000
Cost of goods sold		1,200,000
Gross margin		500,000
Selling and administrative expenses		550,000
Net operating loss	$	(50,000)

PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12,500 units of TX500 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:

	EX300		TX500		Total
Direct materials	$	366,325	$	162,550	$	528,875
Direct labor	$	120,000	$	42,500		162,500
Manufacturing overhead						508,625
Cost of goods sold					$	1,200,000

The company has created an activity-based costing system to evaluate the profitability of its products. PMIs ABC implementation team concluded that $50,000 and $100,000 of the companys advertising expenses could be directly traced to EX300 and TX500, 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:

	Manufacturing		Activity
Activity Cost Pool (and Activity Measure)	Overhead		EX300	TX500	Total
Machining (machine-hours)	$	198,250	90,000	62,500	152,500
Setups (setup hours)		150,000	75	300	375
Product-sustaining (number of products)		100,000	1	1	2
Other (organization-sustaining costs)		60,375	NA	NA	NA
Total manufacturing overhead cost	$	508,625

Required

1.

Compute the product margins for the EX300 and TX500 under the companys traditional costing system.

2.

Compute the product margins for EX300 and TX500 under the activity-based costing system.

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments