Q3. Royal Manufacturing, Inc., makes two types of industrial component parts-the B300 and the T500. A traditional costing income statement for the most recent period is shown: Sales. Cost of goods sold Gross margin... Income Statement $2,100,000 1,600,000 500,000 Selling and administrative expenses Net operating loss ... 550,000 $ (50,000) Royal produced and sold 70,000 units of B300 at a price of $20 per unit and 17,500 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 Direct materials Direct labor Manufacturing overhead Cost of goods sold T500 $436,300 $251,700 $688,000 $200,000 $104,000 304,000 608,000 $1,600,000 Total The company has created an activity-based costing system to evaluate the profitability of its products. Royal ABC implementation team concluded that $50,000 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 ABC team also distributed the company's manufacturing overhead to four activities as shown: 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: Activity Manufacturing Overhead B300 T500 Total $213,500 90,000 62,500 152,500 157,500 75 300 375 120,000 1 1 2 117,000 NA NA $608,000 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 system. 3. prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignments differ.