Hi-Tek Manufacturing, Incorporated, 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...

Hi-Tek Manufacturing, Incorporated, 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 produced and sold 60,400 units of B300 at a price of $20 per unit and 12,800 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:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $52,000 and $108,000 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:

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.