Reference no: EM132515639

Hi-Tek produced and sold 60,500 units of B300 at a price of $20 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                      Total

Direct materials                   $ 400,800               $ 162,100        $ 562,900

Direct labor                            $ 120,700                 $ 42,100         162,800

Manufacturing overhead                                                              489,045

Cost of goods sold                                                                  $ 1,214,745

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $59,000 and $105,000 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)                                   $ 210,295                               90,800              62,700              153,500

Setups (setup hours)                                           116,850                                  75                      210                 285

Product-sustaining (number of products)                   101,600                                   1                       1                   2

Other (organization-sustaining costs)                         60,300                                 NA                           NA                NA

Total manufacturing overhead cost                           $ 489,045

Required:

Question 1. Compute the product margins for the B300 and T500 under the company's traditional costing system.

Question 2. Compute the product margins for B300 and T500 under the activity-based costing system.