Question

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

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 $ 125.00 $ 64.20 $ 16.00 1.6 DLHS 25,000 units Pathfinder $ 91.00 $ 55.00 $ 10.00 1.0 DLHS 71,000 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 $ 2,331,000 111,000 DLHS

All numbers currently in the table are correct.

Answer 1

Xtreme Amount % Pathfinder Amount % Total Amount 1605000 400000 29.1 36 3905000 710000 70.9 5510000 64 1110000 Activity Based costing Direct Costs: Direct Labor Direct Material Indirect Costs Supporting Direct Labor Batch Setup Product Sustaining 320000 341000 390000 36.04 58.49 50 568000 242000 390000 63.96 41.51 50 888000 583000 780000 3056000 5815000 8871000 Total Cost assigned to the product Costs not assigned to the product other Total Cost 80000 8951000 Working Note- 1 Direct Material and labor calculation remains same as shown in Traditional costing 2 Indirect cost under ABC is calculated as follows- Estimated overhead cost for the activity/total activity* expected activity for specific department Sample example for supporting direct labor=888000/111000*40000