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: Hi-Tek Manufacturing Inc. Income Statement Sales $1,709, 200 Cost of goods sold 1,233,722 Gross margin 475,478 Selling and administrative expenses 650,000 Net operating loss $ (174,522) Hi-Tek produced and sold 60.500 units of B300 at a price of $20 per unit and 12.800 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 $400,100 $162,800 $ 562,900 $120,400 $ 42,200 162,600 588,222 $1,233,722 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 $101.000 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 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 Activity Overhead B300 TSee Total $ 211,002 90, 480 62,508 152,900 136, 120 72 260 332 100, 200 2 60,900 NA NA NA $508,222 Required: 1. Compute the product margins for the 8300 and 1500 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