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Hi$-$Tek Manufacturing, Incorporated, makes two industrial component parts$$B$300$ and T$500.$ An absorption costing income statement for the most recent period is shown below:

Hi$-$Tek Manufacturing, Incorporated

Income Statement

Sales $ $1,649,900$

Cost of goods sold $1,229,090$

Gross margin $420,810$

Selling and administrative expenses $580,000$

Net operating loss $ $(159,190)$

Hi$-$Tek produced and sold $60,100$ units of B$300$ at a price of $$19$ per unit and $12,700$ units of T$500$ at a price of $$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:

B$300$ T$500$ Total

Direct materials $ $400,600$ $ $162,300$ $ $562,900$

Direct labor $ $120,100$ $ $42,400162,500$

Manufacturing overhead $503,690$

Cost of goods sold $ $1,229,090$

The company created an activity$-$based costing system to evaluate the profitability of its products. Hi$-$Tek$$s ABC implementation team concluded that $$53,000$ and $$110,000$ of the company$$s advertising expenses could be directly traced to B$300$ and T$500,$ 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$)$ Manufacturing Overhead Activity

B$300$ T$500$ Total

Machining $($machine$-$hours$)$ $ $209,61090,60062,400153,000$

Setups $($setup hours$)132,88072230302$

Product$-$sustaining $($number of products$)100,600112$

Other $($organization$-$sustaining costs$)60,600$ NA NA NA

Total manufacturing overhead cost $ $503,690$

Required:

Compute the product margins for B$300$ and T$500$ under the company$$s traditional costing system.

Compute the product margins for B$300$ and T$500$ under the activity$-$based costing system.

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

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