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 parts?the B300 and the T500. An absorption costing income statement for the most recent period is shown below:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,693,500
Cost of goods sold		1,224,218
Gross margin		469,282
Selling and administrative expenses		650,000
Net operating loss	$	(180,718)

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:

	B300	T500	Total
Direct materials	$	400,400	$	162,000	$	562,400
Direct labor	$	120,100	$	42,800		162,900
Manufacturing overhead						498,918
Cost of goods sold					$	1,224,218

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek?s ABC implementation team concluded that $51,000 and $105,000 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)	$	202,488	90,600	62,800	153,400
Setups (setup hours)		133,730	71	240	311
Product-sustaining (number of products)		102,000	1	1	2
Other (organization-sustaining costs)		60,700	NA	NA	NA
Total manufacturing overhead cost	$	498,918

Required

1.	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 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.)

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 period is shown below: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold $ 1,693,500 1,224,218 Gross margin Selling and administrative expenses 469,282 650,000 Net operating loss $ (180,718) 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 allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional info company's two product lines is shown below: Direct materials Direct labor Manufacturing overhead $ $ B300 400,400 120,100 $ $ T500 162,000 42,800 Total $ Cost of goods sold $ 562,400 162,900 498,918 1,224,218 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team co and $105,000 of the company's advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling a expenses was organization-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as Activ 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 Required Manufacturing Overhead $ 202,488 133,730 102,000 60,700 $ 498,918 B300 90,600 71 1 NA T50 62 1. Compute the product margins for the B300 and T500 under the company's traditional costing system.(Round your intermediate calcu 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 ind 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 "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amo