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	$	1,755,900
Cost of goods sold		1,248,650
Gross margin		507,250
Selling and administrative expenses		600,000
Net operating loss	$	(92,750)

Hi-Tek produced and sold 60,400 units of B300 at a price of $21 per unit and 12,500 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	$	400,300			$	162,700			$	563,000
Direct labor	$	120,500			$	42,200				162,700
Manufacturing overhead										522,950
Cost of goods sold									$	1,248,650

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 $108,000 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)	$	201,300				90,100			62,400			152,500
Setups (setup hours)		159,750				75			280			355
Product-sustaining (number of products)		101,200				1			1			2
Other (organization-sustaining costs)		60,700				NA			NA			NA
Total manufacturing overhead cost	$	522,950

Required

1. Compute the product margins for the B300 and T500 under the companys 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			$

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			$

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))