Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]

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	$ 1,716,000
Cost of goods sold	1,246,775
Gross margin	469,225
Selling and administrative expenses	640,000
Net operating loss	$ (170,775)

Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,800 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	$ 400,900	$ 162,700	$ 563,600
Direct labor	$ 120,600	$ 42,200	162,800
Manufacturing overhead			520,375
Cost of goods sold			$ 1,246,775

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $53,000 and $102,000 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)	$ 206,415	90,300	62,600	152,900
Setups (setup hours)	153,560	79	270	349
Product-sustaining (number of products)	100,000	1	1	2
Other (organization-sustaining costs)	60,400	NA	NA	NA
Total manufacturing overhead cost	$ 520,375

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.

Required 1 Required 2 Required 3 Compute the product margins for the B300 and T500 under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) B300 T500 Total Product margin Required 1 Required 2 Required 3 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 Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.) B300 T500 % of % of Total Amount Amount Amount Traditional Cost System Total cost assigned to products Total cost B300 HINA T500 % of % of Total Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs Indirect costs Total cost assigned to products Costs not assigned to products: Total cost