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Manu, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing...

Manu, 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 $ 1,710,000
Cost of goods sold 1,252,680
Gross margin 457,320
Selling and administrative expenses 600,000
Net operating loss $ (142,680 )

Company produced and sold 60,300 units of B300 at a price of $20 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 $ 400,300 $ 162,200 $ 562,500
Direct labor $ 120,400 $ 42,800 163,200
Manufacturing overhead 526,980
Cost of goods sold $ 1,252,680

The company has created an activity-based costing system to evaluate the profitability of its products. Company's ABC implementation team concluded that $50,000 and $104,000 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
Overhead
Activity
Activity Cost Pool (and Activity Measure) B300 T500 Total
Machining (machine-hours) $ 206,820 90,300 62,900 153,200
Setups (setup hours) 157,960 79 280 359
Product-sustaining (number of products) 102,000 1 1 2
Other (organization-sustaining costs) 60,200 NA NA NA
Total manufacturing overhead cost $ 526,980

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.

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