Problem $7-16($Static$)$ Comparing Traditional and Activity$-$Based Product Margins $[$LO$7-1,$ LO$7-3,$ LO$7-4,$ LO$7-5]$

Hi$-$Tek Manufacturing, Incorporated, makes two industrial component parts$$B$300$ and T$500.$ An absorption costing income statement for the most recent period is shown below:

Hi$-$Tek Manufacturing, Incorporated

Income Statement

Sales $ $2,100,000$

Cost of goods sold $1,600,000$

Gross margin $500,000$

Selling and administrative expenses $550,000$

Net operating loss $ $(50,000)$

Hi$-$Tek produced and sold $70,000$ units of B$300$ at a price of $$20$ per unit and $17,500$ units of T$500$ at a price of $$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:

B$300$ T$500$ Total

Direct materials $ $436,300$ $ $251,700$ $ $688,000$

Direct labor $ $200,000$ $ $104,000304,000$

Manufacturing overhead $608,000$

Cost of goods sold $ $1,600,000$

The company created an activity$-$based costing system to evaluate the profitability of its products. Hi$-$Tek$$s ABC implementation team concluded that $$50,000$ and $$100,000$ of the company$$s advertising expenses could be directly traced to B$300$ and T$500,$ 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 Cost Pool $($and Activity Measure$)$ Manufacturing Overhead Activity

B$300$ T$500$ Total

Machining $($machine$-$hours$)$ $ $213,50090,00062,500152,500$

Setups $($setup hours$)157,50075300375$

Product$-$sustaining $($number of products$)120,000112$

Other $($organization$-$sustaining costs$)117,000$ NA NA NA

Total manufacturing overhead cost $ $608,000$

Required:

Compute the product margins for B$300$ and T$500$ under the company$$s traditional costing system.

Compute the product margins for B$300$ and T$500$ under the activity$-$based costing system.

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 $3$

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

Note: Round your intermediate calculations to $2$ decimal places and "Percentage" answers to $1$ decimal place.

B$300$ T$500$ Total Amount

$\%$ of $\%$ of

Amount Total Amount Amount Total Amount

Traditional Cost System

Total cost assigned to products $$0$ $$0$ $$0$

Total cost $$0$

B$300$ T$500$ Amount

$\%$ of $\%$ of

Amount Total Amount Amount Total Amount

Activity$-$Based Costing System

Direct costs:

Other

Indirect costs:

Total cost assigned to products $$0$ $$0$ $$0$

Costs not assigned to products:

Total cost