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

Hi-Tek Manufacturing Inc. Income Statement
Sales$1,704,000 
Cost of goods sold 1,232,520 
Gross margin 471,480 
Selling and administrative expenses 560,000 
Net operating loss$(88,520)

Hi-Tek produced and sold 60,200 units of B300 at a price of $20 per unit and 12,500 units of T500 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:

 B300T500Total
Direct materials$400,800$162,200$563,000
Direct labor$120,700$42,200 162,900
Manufacturing overhead     506,620
Cost of goods sold    $1,232,520

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $55,000 and $107,000 of the company’s 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 company’s manufacturing overhead to four activities as shown below:

 Manufacturing OverheadActivity
Activity Cost Pool (and Activity Measure)B300T500Total
Machining (machine-hours)$208,080 91,00062,000153,000
Setups (setup hours) 136,740 78240318
Product-sustaining (number of products) 101,400 112
Other (organization-sustaining costs) 60,400 NANANA
Total manufacturing overhead cost$506,620    

Required:

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

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

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

Complete this question by entering your answers in the tabs below.

· Required 1

· Required 2

· Required 3

Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

B300T500TotalProduct margin$0

Complete this question by entering your answers in the tabs below.

· Required 1

· Required 2

· Required 3

Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

B300T500TotalProduct margin$0

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and “Percentage” answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)

B300T500Total% of% ofAmountAmountAmountTraditional Cost System%%%%%%Total cost assigned to products$0$0$0Total cost$0B300T500Total% of% ofAmountTotal AmountAmountTotal AmountAmountActivity-Based Costing SystemDirect costs:%%%%%%Indirect costs:%%%%%%Total cost assigned to products$0$00Costs not assigned to products:Total cost$0