Problem 6-16 Comparing Traditional and Activity-Based Product Margins [LO6-1, LO6-3, LO6-4, LO6-5]

Hi-Tek Manufacturing Inc. makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,714,000
Cost of goods sold		1,237,357
Gross margin		476,643
Selling and administrative expenses		600,000
Net operating loss	$	(123,357)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,700 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	$	400,700			$	162,100			$	562,800
Direct labor	$	120,600			$	42,300				162,900
Manufacturing overhead										511,657
Cost of goods sold									$	1,237,357

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:

	Manufacturing				Activity
Activity Cost Pool (and Activity Measure)	Overhead					B300			T500			Total
Machining (machine-hours)	$	213,087				90,900			62,400			153,300
Setups (setup hours)		137,170				79			240			319
Product-sustaining (number of products)		101,200				1			1			2
Other (organization-sustaining costs)		60,200				NA			NA			NA
Total manufacturing overhead cost	$	511,657

Required

Required 1. Compute the product margins for the B300 and T500 under the company's traditional costing system. (Do not round your overhead rate. Round your other intermediate and final answers to the nearest whole number.) B300 T500 Total Product margin $ 0 2. Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin 0 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your overhead rate. Round your other intermediate calculations and final answers to the neares whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3)) B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Direct materials $ 400,700 % % Direct labor 120,600 % % Manufacturing overhead % % Total cost assigned to products $ 521,300 $ 0 Selling and administrative Total cost $ 0 B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct materials $ 400,700 % % Direct labor 120,600 % % Advertising expense % % Indirect costs: Machining % % % % Setups Product sustaining % % $ 521,300 $ 0 07 0 Total cost assigned to products Costs not assigned to products: Selling and administrative Setups Total cost $ 0