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 Cost of goods sold $ 1,701,300 1,223,608 Gross margin Selling and administrative expenses 477,692 570,000 Net operating loss $ (92,308) Hi-Tek produced and sold 60,300 units of B300 at a price of $20 per unit and 12,700 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 $ 400,200 $ 120,100 Direct materials Direct labor Manufacturing overhead T500 $ 162,900 $ 42,200 $ Total 563,100 162,300 498,208 Cost of goods sold $ 1,223,608 The company has created an activity-based costing system to evaluate the profitability of its products. Hi- Tek's ABC implementation team concluded that $55,000 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: Activity Activity Cost Pool (and Activity Measure) Machining machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Manufacturing Overhead $ 211,278 125,130 101,200 60,600 B300 90,900 71 1 NA T500 62,200 220 1 NA Total 153,100 291 NA Total manufacturing overhead cost $ 498,208 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.) B300 T500 Total Product margin 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.) B300 T T500 500 Total Product margin 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.) B300 T500 Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Total cost assigned to products Total cost T500 Total B300 - % of Total Amount % of Total Amount Amount Amount Amount Activity-Based Costing System Direct costs: Indirect costs: L L L L L Total cost assigned to products L Costs not assigned to products: Total cost