Hi-Tek Manufacturing, Inc., makes two types of industrialcomponent parts—the B300 and the T500. An absorption costing incomestatement for the most recent period is shown:

Hi-Tek Manufacturing Inc. Income Statement
Sales	$	1,710,000
Cost of goods sold		1,213,984
Gross margin		496,016
Selling and administrative expenses		630,000
Net operating loss	$	(133,984	)

Hi-Tek produced and sold 60,300 units of B300 at a price of $20per unit and 12,600 units of T500 at a price of $40 per unit. Thecompany’s traditional cost system allocates manufacturing overheadto products using a plantwide overhead rate and direct labordollars as the allocation base. Additional information relating tothe company’s two product lines is shown below:

	B300		T500		Total
Direct materials	$	400,300	$	162,200	$	562,500
Direct labor	$	120,400	$	42,600		163,000
Manufacturing overhead						488,484
Cost of goods sold					$	1,213,984

The company has created an activity-based costing system toevaluate the profitability of its products. Hi-Tek’s ABCimplementation team concluded that $57,000 and $104,000 of thecompany’s advertising expenses could be directly traced to B300 andT500, respectively. The remainder of the selling and administrativeexpenses was organization-sustaining in nature. The ABC team alsodistributed the company’s manufacturing overhead to four activitiesas shown below:

	Manufacturing Overhead			Activity
Activity Cost Pool (and Activity Measure)				B300	T500	Total
Machining (machine-hours)	$	204,484		90,200	62,400	152,600
Setups (setup hours)		123,200		78	230	308
Product-sustaining (number of products)		100,200		1	1	2
Other (organization-sustaining costs)		60,600		NA	NA	NA
Total manufacturing overhead cost	$	488,484

Required:

1. Compute the product margins for the B300 and T500 under thecompany’s traditional costing system.

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

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