Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, 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 $ 1,708,000 1,223,611 484,389 610,000 $(125,611) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 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 T500 Total Direct materials Direct labor Manufacturing overhead Cost of goods sold $ 400,300 $.120,700 $. 42,900 162,900 $563,200 163,600 496,811 $ 1,223,611 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 $100,000 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 ABCteam also distributed the company's manufacturing overhead to four activities as shown below: Activit 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 $ 200,561 135,450 100,000 T500 Total 90,600 62,500 153,100 230 71 301 60,800 NA NA NA $496,811 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 systenm 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments