REQUIRED:

1. Compute the product margins for the B300 and T500 under the company's traditional costing system.

2. Compute the product margins for the B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

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 $ 1,651,600 1,237,474 414,126 590,000 $ (175,874) Hi-Tek produced and sold 60.400 units of B300 at a price of $19 per unit and 12,600 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: Direct materials Direct labor Manufacturing overhead Cost of goods sold B300 T500 Total $ 400,200 $ 162,200 $ 562,400 $ 120,200 $ 42,800 163,000 512,074 $ 1,237, 474 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $60,000 and $102,000 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 $ 210,864 140,610 100,400 60,200 $ 512,074 Activity B300 T500 Total 90,300 62,500 152,800 77 250 327 1 1 1 2 NA NA NA