Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices-one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company's most recent year is given: Sales Variable expenses Contribution margin Traceable fixed expenses Office segment margin Common fixed expenses not traceable to offices Net operating income Total Company $ 465,000 100% 235,000 50% 230,000 50% 128,000 288 102,000 22% 65,500 14% $ 36,500 8% Office Chicago Minneapolis $ 157,500 100% $ 307,500 50,000 30% 184,500 60% 107,500 708 123,000 40% 79,000 52% 49,200 16% $ 28,500 18% $ 73,800 24% Assume that Minneapolis' sales by major market are: Sales Variable expenses Contribution margin Traceable fixed expenses Market segment margin Common fixed expenses not traceable to markets Office segment margin Minneapolis $ 307,500 100% 184,500 60% 123,000 40% 49,200 168 73, 800 24% 15,000 5% $ 58,800 19% Market Medical Dental $ 210,000 100% $ 110,000 100% 130,500 64% 54,500 52% 79,500 36% 55,500 48% 13,000 68 23,500 21% $ 66,500 30% S 32,000 27% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $7,500. Marketing studies indicate that such a campaign would increase sales in the Medical market by $45,000 or increase sales in the Dental market by $42,500. Required: 1. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Medical Market? 2. How much would the company's profits increase (decrease) if it implemented the advertising campaign in the Dental Market? 3. In which of the markets would you recommend that the company focus its advertising campaign? 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: Hi-Tek Manufacturing Inc. Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,716,000 1,227,808 488,192 640,000 $ (151, 808) Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,800 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 $ 400,900 $ 120,200 T500 $ 162,300 $ 42,900 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,200 163,100 501,508 $ 1,227,808 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $58,000 and $108,000 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: The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $58,000 and $108,000 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 Overhead $ 210,588 128,520 101,600 60,800 $ 501,508 B300 90,200 76 1 NA Activity T500 Total 62,400 152,600 230 306 1 2 NA NA 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