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	$	1,704,000
Cost of goods sold		1,218,840
Gross margin		485,160
Selling and administrative expenses		560,000
Net operating loss	$	(74,840	)

Hi-Tek produced and sold 60,200 units of B300 at a price of $20per unit and 12,500 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	$	400,800	$	162,500	$	563,300
Direct labor	$	120,800	$	42,300		163,100
Manufacturing overhead						492,440
Cost of goods sold					$	1,218,840

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 $102,000 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)	$	201,960		90,900	62,100	153,000
Setups (setup hours)		128,480		72	220	292
Product-sustaining (number of products)		101,400		1	1	2
Other (organization-sustaining costs)		60,600		NA	NA	NA
Total manufacturing overhead cost	$	492,440

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.