Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]

Hi-Tek Manufacturing Inc. makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,708,000
Cost of goods sold		1,216,978
Gross margin		491,022
Selling and administrative expenses		560,000
Net operating loss	$	(68,978)

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,500 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	$	400,900	$	162,200	$	563,100
Direct labor	$	121,000	$	42,800		163,800
Manufacturing overhead						490,078
Cost of goods sold					$	1,216,978

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 $106,000 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:

	Manufacturing		Activity
Activity Cost Pool (and Activity Measure)	Overhead		B300	T500	Total
Machining (machine-hours)	$	205,958	90,900	62,800	153,700
Setups (setup hours)		122,220	71	220	291
Product-sustaining (number of products)		101,000	1	1	2
Other (organization-sustaining costs)		60,900	NA	NA	NA
Total manufacturing overhead cost	$	490,078

Required

1.	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 answer to the nearest whole dollars.)

2.	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.)

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)