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	$ 1,703,300
Cost of goods sold	1,218,624
Gross margin	484,676
Selling and administrative expenses	600,000
Net operating loss	$ (115,324)

Hi-Tek produced and sold 60,400 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	$ 400,600	$ 162,200	$ 562,800
Direct labor	$ 120,300	$ 42,500	162,800
Manufacturing overhead			493,024
Cost of goods sold			$ 1,218,624

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $59,000 and $107,000 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)	$ 208,624	90,700	62,700	153,400
Setups (setup hours)	123,300	74	200	274
Product-sustaining (number of products)	100,600	1	1	2
Other (organization-sustaining costs)	60,500	NA	NA	NA
Total manufacturing overhead cost	$ 493,024

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.

Please help by the end of the day :)))