Question

Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below: Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales Xtreme $ 115.00 $ 65.40 $ 16.00 1.6 DLHs 32,000 units Pathfinder $ 85.00 $ 53.00 $ 10.00 1.0 DLHS 60,000 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 Estimated total direct labor-hours $ 1,779,200 111,200 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):

Answer 1

Answers 1 Product Margin under Traditional Costing Xtreme | Pathfinder Prodcut Margin 256000 360000 2 Product Margin under Activity Based costing Xtreme I Pathfinder Prodcut Margin 189200 480000 Total 616000 Total 669200

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Xtreme Pathfinder Total Traditional Costing System Amount % Amount % Direct Material 2092800 39.7% 3180000 60.3% 5272800 DirectLabor 512000 46.0% 600000 54.0% 1112000 Manufacturing Overheads 819200 46.0% 960000 54.0% 1779200 Cost Assigned to Prodcut 3424000 4740000 8164000 Quantitative Comparison of Acticity Based Cost Assignments Xtreme Pathfinder Total Activty Based Costing System Amount | % Amount % Direct Cost Direct Material 2092800 39.7% 3180000 60.3% 5272800| Direct Labor 512000 46.0% 600000 54.0% 1112000 Indirect Cost Supporing direct Labor 256000 46.0% 300000 54.0% 556000 Batch setup 430000 55.8% 340000 44.2% 770000 Prodcut Sustainind 200000 50.0% 200000 50.0% 400000 Total Cost Assigned to Products 3490800 4620000 8110800 Cost Not asigned to the Products Other 53200 Total Cost 8164000

Working Notes Xtreme Selling Price 115.00 Direct Material 65.40 Direct Labor 16.00 Dirct Labou hour Per unit 1.60 Estimated Production 32000 Pathfinder 85.00 53.00 10.00 1.00 60000 Estimated MOH Estimated Labor hours Predetermined Overhead Rate Total Direct Labor Hours = (Units * Direct Labor Hour) 1779200 111200 16.00 1779200/111200 Xtreme Pathfinder Total 51200 60000 1 11200 Traditional Costing System Xtreme | Pathfinder Total sales 3680000 5100000 8780000 Direct Material 2092800 31800005272800 Direct Labor 512000 600000 1112000 Manufacturing Overheads 819200 960000 1779200 Total Manufacturing Cost 3424000 47400008164000 Product Margin 256000 360000 616000

Determination of Activity Rate Activty Pool Estimated OH Supporing direct Labor 556000 Batch setup 770000 Prodcut Sustainind 400000 Base Activity Rate 111200 5.00 770 1000 - 2 200000 Activity Based Costing System Xtreme Pathfinder Total sales 3680000 5100000 8780000 Direct Material 2092800 3180000 5272800 Direct Labor 512000 600000 1112000 Supporing direct Labor 256000 300000 556000 Batch setup 430000 340000 770000 Prodcut Sustainind 200000 200000 400000 Total Cost 3490800 4620000 8110800 Product Margin 189200 480000 669200