2. alue 6.66 points Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 Cost of goods sold $1,639,000 1,228,770 Gross margin Selling and administrative expenses 410,230 640,000 Net operating loss $ (229,770) Hi-Tek produced and sold 60,400 units of B300 at a price of $19 per unit and 12,600 units of T500 at a price of $39 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 Direct materials Direct labor Manufacturing overhead $ 400,500 $162,400 $ 562,900 162,900 502,970 $120,000 $42,900 Cost of goods sold $ 1,228,770 The company has created an activity-based costing system to evaluate the profitability of its products. Hi- Tek's ABC implementation team concluded that $53,000 and $101,000 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 Activity Manufacturing B300 Total Activity Cost Pool (and Activity Measure) Machining (machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Overheacd $ 202,620 139,050 100,600 60,700 T500 90,600 62,900 53.500 309 79 230 NA NA NA Total manufacturing overhead cost $ 502,970