Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins (LO7-1, L07-3, LO7-4, LO7-5) Sales Hi-Tek Manufacturing, Incorporated, makes two types of industrial component parts-the 1300 and the 1500 An absorption costing income statement for the most recent period is shown Hi-Tok Manufacturing Incorporated Income statement $1,693,400 Cost of goods sold 1,247,872 Gross margin 445,528 Selling and administrative expenses 590, eee Net operating loss $ (144,472) Hi-Tek produced and sold 60,100 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $39 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: B380 T500 Total Direct materials $ 480,880 $ 162,200 $ 563,880 Direct labor $ 120,600 $ 42,900 163,500 Manufacturing overhead 521,372 Cost of goods sold $ 1,247,872 The company has created an activity-based costing system to evaluate the profitability of its products. Hl-Tek's ABC implementation team concluded that $58,000 and $106,000 of the company's advertising expenses could be directly traced to 1300 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 below. Manufacturing Activity Activity Cost Pool (and activity Measure) Overhead 8388 T500 Total Machining (machine-hours) 5 212,382 90,900 63, eee 153,900 Setups (setup hours) 147,190 280 359 Product-sustaining (number of products) 101,400 1 Other (organization-sustaining costs) 60,400 Total manufacturing overhead cost $ 521,372 79 1 NA 2 NA NA Required: 1. Compute the product margins for the B300 and T500 under the company's 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