Sales Hi-Tek Manufacturing Inc. Cost of goods sold Income Statement $1,631,300 1,235,845 Gross margin 395,455 Selling and administrative expenses. 640,000 Net operating loss $ (244,545) Hi-Tek produced and sold 60,200 units of B300 at a price of $19 per unit and 12,500 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 $ 400,700 $162,400 $ 563,100 $ 120,900 $ 43,000 163,900 508,845 $1,235,845 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $52,000 and $107,000 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) Manufacturing Overhead Activity 8300 T500 $206,415 90,300 62,600 Total 152,900 Setups (setup hours) 142,330 71 Product-sustaining (number of products) 100,000 1 260 1 331 2 Other (organization-sustaining costs) Total manufacturing overhead cost 60,100 NA NA NA $508,845 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.