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 below: Hi-Tek Manufacturing Inc. Income Statement Sales $ 1,764,000 Cost of goods sold 1,206,386 Gross margin 557,614 Selling and administrative expenses 650,000 Net operating loss $ (92,386) Hi-Tek produced and sold 60,000 units of B300 at a price of $21 per unit and 12,600 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: B300 T500 Total Direct materials $ 400,200 $ 162,600 $ 562,800 Direct labor $ 120,500 $ 42,800 163,300 Manufacturing overhead 480,286 Cost of goods sold $ 1,206,386 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $51,000 and $102,000 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 Activity Activity Cost Pool (and Activity Measure) Overhead B300 T500 Total Machining (machine-hours) $ 201,696 90,700 62,100 152,800 Setups (setup hours) 117,390 73 200 273 Product-sustaining (number of products) 100,800 1 1 2 Other (organization-sustaining costs) 60,400 NA NA NA Total manufacturing overhead cost $ 480,286
Required 1. 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 answer to the nearest whole dollars.)
2. 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.)
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)