Managerial accounting problem 7-16 comparing traditional and activity based product margins 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 sales 2,100,000 cost of goods 1,600,000 gross margin 500,000 selling expenses 500,000 net operating loss 50,000 hi-tek sold 70,000 b300 units at 20 per unit and 17,500 t500 units at 40 per unit the companys traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base additional information is below direct materials b300 436,000 direct labor 200,000 t500 diect material 251,700 direct labor 104,000 total direct materials 688,000 direct labor 304,000 manufacturing overhead 608,000 cost of goods sold 1,600,000 the company has created an activity based costing system to evaluate the profitability of its products hi teks ABC implementation team concluded that 50,000 and 100,000 of the companys advertising expenses could be directly traced to b300 and t500 respectively the remainder of the selling and administrative was organizational sustaining in nature the ABC team also distributed the companys manufacturing overhead to four activities shown machining manufacturing overhead 213,000 b300 90,000 t500 62,500 total 153,500 setups manufacturing overhead 157,500 b300 75 t500 300 total 375 product sustaining manufacturing overhead 120,000 b300 1 t55 1 total 2 other manufacturing overhead 117,000 b33 n/a t500 n/a totaln/a total manufacturing overhead cost 608,000 required 1. compute the product margin for the b300 and the t500 using the traditional costing system 2. compute the product margin for the b300 and the t55 using the activity based costing system 3. prepare a quantitative comparison of the traditional and activity based cost assignments, explain why the traditional and activity based costing assignments differ