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: Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $2,100,000 1,600,000 500,000 550,000 $ (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 T500 Total Direct materials Direct labor ... Manufacturing overhead Cost of goods sold $436,300 $251,700 $ 688,000 $200,000 $104,000 304,000 608,000 $1,600,000 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 Manufacturing Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours). $213,500 90,000 Setups (setup hours) 157,500 Product-sustaining (number of products) 120,000 75 1 62,500 300 1 152,500 375 2 Other (organization-sustaining costs) 117,000 NA NA NA Total manufacturing overhead cost... $608,000 Required: 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.