Solution:
Solution 1) Calculation of product margins for Xtreme and the Pathfinder products under the company’s traditional costing system.
Estimated Total Manufacturing Overheads = $1,927,800
Estimated total direct labour hours = 113,400 hours
Therefore, Overhead rate per direct labour hours
= Estimated Total Manufacturing Overheads / Estimated total direct labour hours
= $1,927,800 / 113,400 hours = $17.00 per direct labour hour.
Overhead cost assigned to Xtreme
= Direct labour hours of Xtreme x Overhead rate per direct labour hour
= 37,400 hours x $17.00 = $635,800
Overhead cost assigned to Pathfinder
= Direct labour hours of Pathfinder x Overhead rate per direct labour hour
= 76,000hours x $17.00 = $1,292,000
Product margins for Xtreme and the Pathfinder products under the company’s traditional costing system.
Xtreme |
Pathfinder |
|||
Total $ (22,000 Units) |
Per Unit $ |
Total $ (76,000 Units) |
Per Unit $ |
|
Sales |
26,40,000.00 |
120.00 |
66,12,000.00 |
87.00 |
Less: Variable Cost |
||||
Material |
13,92,600.00 |
63.30 |
39,52,000.00 |
52.00 |
Labour |
3,74,000.00 |
17.00 |
7,60,000.00 |
10.00 |
Total Variable Cost |
17,66,600.00 |
80.30 |
47,12,000.00 |
62.00 |
Contribution = Sales - Total Variable Cost |
8,73,400.00 |
39.70 |
19,00,000.00 |
25.00 |
Less: Fixed Cost (Overheads) |
6,35,800.00 |
28.90 |
12,92,000.00 |
17.00 |
Profit |
2,37,600.00 |
10.80 |
6,08,000.00 |
8.00 |
Solution 2) Calculation of product margins for Xtreme and the Pathfinder products under the Activity Based costing system.
Calculation of Rate per Cost Driver as per Activity Based Costing
Overheads |
Cost $ |
Cost Driver |
Number of Cost Drivers |
Rate Per Cost Driver = Cost $ / Number of Cost Drivers |
Supporting Direct Labour |
7,03,080.00 |
Direct Labour Hours |
1,13,400 hours |
$6.20 per DLH |
Batch Setup |
4,80,000.00 |
Number of setups |
400 setups |
$1,200.00 per setup |
Product Sustaining |
7,00,000.00 |
Number of products |
2 products |
$3,50,000.00 per product |
18,83,080.00 |
Calculation of Overheads allocated to Xtreme and Pathfinder
Xtreme |
Pathfinder |
|||||
Costs |
Number of Activities |
Activity Rate $ |
Cost $ |
Number of Activities |
Activity Rate $ |
Cost $ |
Supporting Direct Labour |
37,400 |
6.20 |
2,31,880.00 |
76,000 |
6.20 |
4,71,200.00 |
Batch Setup |
220 |
1,200.00 |
2,64,000.00 |
180 |
1,200.00 |
2,16,000.00 |
Product Sustaining |
1 |
3,50,000.00 |
3,50,000.00 |
1 |
3,50,000.00 |
3,50,000.00 |
Total Overhead Cost $ |
8,45,880.00 |
10,37,200.00 |
||||
Number of Units |
22,000 |
76,000 |
||||
Overhead Cost per Unit $ |
38.45 |
13.65 |
Product margins for Xtreme and the Pathfinder products under the Activity Based costing system.
Xtreme |
Pathfinder |
|||
Total $ (22,000 Units) |
Per Unit $ |
Total $ (76,000 Units) |
Per Unit $ |
|
Sales |
26,40,000.00 |
120.00 |
66,12,000.00 |
87.00 |
Less: Variable Cost |
||||
Material |
13,92,600.00 |
63.30 |
39,52,000.00 |
52.00 |
Labour |
3,74,000.00 |
17.00 |
7,60,000.00 |
10.00 |
Total Variable Cost |
17,66,600.00 |
80.30 |
47,12,000.00 |
62.00 |
Contribution = Sales - Total Variable Cost |
8,73,400.00 |
39.70 |
19,00,000.00 |
25.00 |
Less: Fixed Cost (Overheads) |
8,45,880.00 |
38.45 |
10,37,200.00 |
13.65 |
Profit |
27,520.00 |
1.25 |
8,62,800.00 |
11.35 |
Solution 3) Preparation of quantitative comparison of the traditional and activity based cost assignments.
Xtreme |
Pathfinder |
Total |
|||
Amount |
% of Total Amount |
Amount |
% of Total Amount |
Amount |
|
Traditional Cost System |
|||||
Direct Material |
13,92,600.00 |
57.97 |
39,52,000.00 |
65.82 |
53,44,600.00 |
Direct Labour |
3,74,000.00 |
15.57 |
7,60,000.00 |
12.66 |
11,34,000.00 |
Overheads |
6,35,800.00 |
26.47 |
12,92,000.00 |
21.52 |
19,27,800.00 |
Total cost assigned to products |
24,02,400.00 |
60,04,000.00 |
84,06,400.00 |
||
- |
|||||
Xtreme |
Pathfinder |
Total |
|||
Amount |
% of Total Amount |
Amount |
% of Total Amount |
Amount |
|
Activity Based Costing System |
|||||
Direct Costs |
|||||
Direct Material |
13,92,600.00 |
53.31 |
39,52,000.00 |
68.74 |
53,44,600.00 |
Direct Labour |
3,74,000.00 |
14.32 |
7,60,000.00 |
13.22 |
11,34,000.00 |
Indirect Costs |
|||||
Supporting Direct Labour |
2,31,880.00 |
8.88 |
4,71,200.00 |
8.20 |
7,03,080.00 |
Batch Setup |
2,64,000.00 |
10.11 |
2,16,000.00 |
3.76 |
4,80,000.00 |
Product Sustaining |
3,50,000.00 |
13.40 |
3,50,000.00 |
6.09 |
7,00,000.00 |
Total cost assigned to products $ |
26,12,480.00 |
57,49,200.00 |
83,61,680.00 |
||
Costs not assigned to products: |
44,720.00 |
||||
Total cost $ |
84,06,400.00 |
||||
Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these...
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 $141.00 $ 64.50 $ 17.00 1.7 DLHS 23,000 units Pathfinder $ 91.00 $ 52.00 $ 10.00 1.0 DLHS 74,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on...
Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below Xtreme $120.00 $ 63.50 $ 13.50 1.5 DLHS 24,000 units Pathfinder $ 92.00 $ 54.00 $ 9.00 1.0 DLHS 71,000 units Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales The company has a traditional costing system in which manufacturing overhead is applied to units based on...
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 $ 120.00 $ 63.50 $ 13.50 1.5 DLHS 24,000 units Pathfinder $ 92.00 $ 54.00 $ 9.00 1.0 DLHS 71,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...
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 $ 120.00 $ 90.00 Direct materials per unit $ 64.10 $ 53.00 Direct labor per unit $ 13.50 $ 9.00 Direct labor-hours per unit 1.5 DLHs 1.0 DLHs Estimated annual production and sales 30,000 units 70,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...
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...
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 $ 65.10 $ 10.00 1.0 DLHS 29,000 units Pathfinder $ 83.00 $ 50.00 $ 10.00 1.0 DLHS 71,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...
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 $ 118.00 $ 65.00 $ 13.50 1.5 DLHS 28,000 units Pathfinder $ 84.00 $ 52.00 $ 9.00 1.0 DLHS 65,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...
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...
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 $ 115.00 $ 85.00 Direct materials per unit $ 63.90 $ 51.00 Direct labor per unit $ 12.00 $ 10.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 28,000 units 75,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...
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 $ 116.00 $ 64.00 $ 12.00 1.5 DLHS 29,000 units Pathfinder $ 80.00 $ 52.00 $ 8.00 1.0 DLHS 76,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based...