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	$ 1,701,300
Cost of goods sold	1,229,010
Gross margin	472,290
Selling and administrative expenses	650,000
Net operating loss	$ (177,710)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,700 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	$ 400,800	$ 162,100	$ 562,900
Direct labor	$ 120,100	$ 42,700	162,800
Manufacturing overhead			503,310
Cost of goods sold			$ 1,229,010

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)	$ 202,620	91,000	62,500	153,500
Setups (setup hours)	138,890	73	250	323
Product-sustaining (number of products)	101,600	1	1	2
Other (organization-sustaining costs)	60,200	NA	NA	NA
Total manufacturing overhead cost	$ 503,310

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.

Problem 7-16 (Algo) Comparing Traditional and Activity-Based Product Margins (LO7-1, LO7-3, L07- 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 $ 1,701,300 Cost of goods sold 1,229,010 Gross margin 472,290 Selling and administrative expenses 650,000 Net operating loss $ (177,710) Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,700 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: B300 $ 400,800 $ 120,100 T500 $ 162,100 $ 42,700 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 562,900 162,800 503,310 $ 1,229,010 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 and $102,000 of the company's advertising expenses could be directly traced to B300 and 1500, 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: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Manufacturing Overhead $ 202,620 B300 91,000 Activity T500 62,500 Total 153,500 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $53,000 and $102,000 of the company's advertising expenses could be directly traced to B300 and 1500, 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: Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost Manufacturing Overhead $ 202,620 138,890 101,600 60,200 $ 503,310 B300 91,000 73 1 NA Activity T500 62,500 250 1 NA Total 153,500 323 2 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. Complete this question by entering your answers in the tabs below. 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