Question

Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:



Xtreme Pathfinder
Selling price per unit $ 121.00 $ 85.00
Direct materials per unit $ 64.90 $ 51.00
Direct labor per unit $ 11.20 $ 8.00
Direct labor-hours per unit 1.4 DLHs 1.0 DLHs
Estimated annual production and sales 27,000 units 70,000 units


The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:




Estimated total manufacturing overhead $ 2,156,000
Estimated total direct labor-hours 107,800 DLHs


Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.

2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):



Estimated
Overhead Cost Expected Activity
Activities and Activity Measures Xtreme Pathfinder Total
Supporting direct labor (direct labor-hours) $ 700,700 37,800 70,000 107,800
Batch setups (setups) 737,000 380 290 670
Product sustaining (number of products) 640,000 1 1 2
Other 78,300 NA NA NA
Total manufacturing overhead cost $ 2,156,000


Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.



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

Answer 1

Omg!! Really? it's a lot