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	$ 1,774,100
Cost of goods sold	1,230,434
Gross margin	543,666
Selling and administrative expenses	640,000
Net operating loss	$ (96,334)

Hi-Tek produced and sold 60,100 units of B300 at a price of $21 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	$ 400,600	$ 162,400	$ 563,000
Direct labor	$ 120,900	$ 42,200	163,100
Manufacturing overhead			504,334
Cost of goods sold			$ 1,230,434

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 $100,000 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)	$ 205,154	90,600	62,500	153,100
Setups (setup hours)	137,280	72	240	312
Product-sustaining (number of products)	101,600	1	1	2
Other (organization-sustaining costs)	60,300	NA	NA	NA
Total manufacturing overhead cost	$ 504,334

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.

Compute the product margins for the B300 and T500 under the companys 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

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			$0

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 Amount
		% of		% of
	Amount		Amount
Traditional Cost System
Total cost assigned to products	$0		$0		$0
Total cost					$0
	B300		T500		Total Amount
		% of		% of
	Amount	Total Amount	Amount	Total Amount
Activity-Based Costing System
Direct costs:
Indirect costs:
Total cost assigned to products	$0		$0		0
Costs not assigned to products:
Total cost					$0

• Required 2