i-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	$	1,708,000
Cost of goods sold		1,208,166
Gross margin		499,834
Selling and administrativeexpenses		620,000
Net operating loss	$	(120,166	)

Hi-Tek produced and sold 60,000 units of B300 at a price of $20per unit and 12,700 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	$	400,900	$	162,200	$	563,100
Direct labor	$	120,800	$	42,200		163,000
Manufacturing overhead						482,066
Cost of goods sold					$	1,208,166

The company has created an activity-based costing system toevaluate the profitability of its products. Hi-Tek’s ABCimplementation team concluded that $53,000 and $106,000 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 ActivityMeasure)				B300	T500	Total
Machining(machine-hours)	$	205,556		90,800	62,600	153,400
Setups (setup hours)		115,210		71	210	281
Product-sustaining (number ofproducts)		101,000		1	1	2
Other (organization-sustainingcosts)		60,300		NA	NA	NA
Total manufacturing overheadcost	$	482,066

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.