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

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:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,753,500
Cost of goods sold		1,232,123
Gross margin		521,377
Selling and administrative expenses		560,000
Net operating loss	$	(38,623	)

Hi-Tek produced and sold 60,100 units of B300 at a price of $21 per unit and 12,600 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	$	162,200	$	562,500
Direct labor	$	120,000	$	42,900		162,900
Manufacturing overhead						506,723
Cost of goods sold					$	1,232,123

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 $101,000 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 Overhead			Activity
Activity Cost Pool (and Activity Measure)				B300	T500	Total
Machining (machine-hours)	$	209,473		90,400	62,500	152,900
Setups (setup hours)		134,550		79	220	299
Product-sustaining (number of products)		102,000		1	1	2
Other (organization-sustaining costs)		60,700		NA	NA	NA
Total manufacturing overhead cost	$	506,723

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 $ 0 Required 1 Required 2 Required 3 Compute the product margins for B300 and 1500 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 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 Total % of % of Amount Amount Amount Traditional Cost System % % % % % % Total cost assigned to products S S 0 S 0 Total cost S 0 B300 T500 Total % of Total Amount % of Total Amount Amount Amount Amount Activity-Based Costing System Direct costs: % % % % Indirect costs: % % % % % % 0 S 0 0 Total cost assigned to products Costs not assigned to products: Total cost S 0