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Hi-Tek Manufacturing, Incorporated, 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 Incorporated Income Statement Sales $ 1,712,000 Cost of goods sold 1,244,586 Gross margin 467,414 Selling and administrative expenses 560,000 Net operating loss $ (92,586) Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,600 units of T500 at a price of $40 per unit. The companys 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 companys two product lines is shown below: B300 T500 Total Direct materials $ 400,300 $ 163,000 $ 563,300 Direct labor $ 120,500 $ 42,400 162,900 Manufacturing overhead 518,386 Cost of goods sold $ 1,244,586 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Teks ABC implementation team concluded that $55,000 and $109,000 of the companys 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 companys manufacturing overhead to four activities as shown below: Activity Cost Pool (and Activity Measure) Manufacturing Overhead Activity B300 T500 Total Machining (machine-hours) $ 204,886 90,800 62,100 152,900 Setups (setup hours) 151,800 75 270 345 Product-sustaining (number of products) 101,000 1 1 2 Other (organization-sustaining costs) 60,700 NA NA NA Total manufacturing overhead cost $ 518,386 Required: Compute the product margins for the B300 and T500 under the companys traditional costing system. Compute the product margins for B300 and T500 under the activity-based costing system. Prepare a quantitative comparison of the traditional and activity-based cost assignments

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