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 parts-the B300 and the T500. An absorption costing income statement for the most recent period is shown below: Hi-Tek Manufacturing Inc. Income Statement 1,768.200 1,230,708 537.492 590.000 (52,508) Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,600 units of T500 at a price of $40 per unit. The company's 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 company's two product lines is shown below: T500 $162,500 S 42,400 300 $ 400.100 $120,200 Total $ 562,600 162,600 505,508 1,230.708 Direct materials Direct labor Manufacturing overhead Cost of goods sold The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 and $110,000 of the company's 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 company's manufacturing overhead to four activities as shown belo Activity Manufacturing Overhead 208,788 135.520 101.200 60,000 505.508 B300 90,300 78 1 Total 152 400 308 2 NA T500 62.100 Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost 230 1 NA NA 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.) Answer is complete and correct. B300 T500 Total Product margin $ 539,860 373,492 166,368 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.) Answer is complete but not entirely correct. B300 T500 Total Product margin 367,401 $ $ $ (46,090) 321,311 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 nearest whole number. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) Answer is complete but not entirely correct. B300 T500 Total % of % of Total Total Amount Amount Amount Amount Amount Traditional Cost System 71.1 % 28.9 % 563.300 Direct materials 400.700 162,600 73.7 % 26.3 % 120.100 Direct labor 42,900 163,000 73.7 % 26.3 % Manufacturing overhead 369,908 132,132 502,040 $ 890,708 Total cost assigned to products 337,632 1.228,340 Selling and administrative 640,000 $ 1,868,340 Total cost Answer is not complete. B300 T500 Total % of % of Total Total Amount Amount Amount Amount Amount Activity-Based Costing System Direct costs: Direct materials Direct labor % Advertising expense Indirect costs: Machining % % Setups % Product sustaining $ $ Total cost assigned to products 0 0 Costs not assigned to products: Selling and administrative Other $ Total cost 0