Problem 7-16 Comparing Traditional and Activity-Based Product Margins (L07-1, LO7-3, L07-4, LO7-5) Hi-Tek Manufacturing, Inc., makes two types of industrial component parts--the B300 and the T500. An absorption costing income statement for the most recent period is shown: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,693,500 1,217,884 475, 616 570,000 $ (94,384) Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,500 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400,900 $ 162,900 $ 563,800 $ 120,600 $ 42,500 163, 100 490,984 $1,217,884 Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400,900 $ 162,980 $ 563,880 $ 120,600 $ 42,500 163, 100 490,984 $1,217,884 ces The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $57,000 and $109,000 of the company's 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 company's manufacturing overhead to four activities as shown below. Manufacturing Activity Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 210,864 90,200 62,600 152,800 Setups (setup hours) 118,020 71 210 281 Product-sustaining number of products) 101,800 1 2 Other (organization-sustaining costs) 60,300 NA NA NA Total manufacturing overhead cost $ 490,984 1 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