Question

1.

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	$	130.00		$	91.00
Direct materials per unit	$	64.30		$	50.00
Direct labor per unit	$	11.20		$	8.00
Direct labor-hours per unit		1.4	DLHs		1.0	DLHs
Estimated annual production and sales		21,000	units		72,000	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	$	2,230,800
Estimated total direct labor-hours		101,400	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)	$	699,660		29,400	72,000	101,400
Batch setups (setups)		660,000		320	230	550
Product sustaining (number of products)		780,000		1	1	2
Other		91,140		NA	NA	NA
Total manufacturing overhead cost	$	2,230,800

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.

Complete LNIS question by entering your anSwers m the tabs belovw. Required 1 Required Required 3 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Ro your intermediate calculations to 2 decimal places.) Xtreme Pathfinder Total Product margin $1,213,200 $ 1,213,200 Required 3 Requ

Answer 1

Answers 1 Product Margin under Traditional Costing Xtreme Pathfinder Prodcut Margin 497700 792000 2 Product Margin under Activity Based costing Xtreme Pathfinder Prodcut Margin 167640 1 213200 Total 1289700 Total 1380840

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Xtreme D Pathfinder Total Traditional Costing System Amount % Amount % Direct Material 1350300 27.3% 3600000 72.7% 4950300 DirectLabor 235200 29.0% 576000 71.0% 811200 Manufacturing Overheads 646800 29.0% 1584000 71.0% 2230800 Cost Assigned to Prodcut 2232300 5760000 7992300 Quantitative Comparison of Acticity Based Cost Assignments Xtreme Pathfinder Total Activty Based Costing System Amount % Amount % Direct Cost Direct Material 1350300 27.3% 3600000 72.7% 4950300 Direct Labor 235200 29.0% 576000 71.0% 811200 Indirect Cost Supporing direct Labor 202860 29.0% 496800 71.0% 699660 Batch setup 384000 58.2% 276000 41.8% 660000 Prodcut Sustainind 390000 50.0% 390000 50.0% 780000 Total Cost Assigned to Products 2562360 5338800 7901160 Cost Not asigned to the Products Other 91140 Total Cost 7992300

Working Notes Xtreme Selling Price 130.00 Direct Material 64.30 Direct Labor 11.20 Dirct Labou hour Per unit 1.40 Estimated Production 21000 Pathfinder 91.00 50.00 8.00 1.00 72000 Estimated MOH Estimated Labor hours Predetermined Overhead Rate Total Direct Labor Hours = (Units * Direct Labor Hour) 2230800 101400 22.00 2230800/101400 Pathfinder Total 29400 72000 101400 Xtreme Traditional Costing System Xtreme Pathfinder Total sales 2730000 6552000 9282000 Direct Material 1350300 3600000 4950300 Direct Labor 235200 576000 811200 Manufacturing Overheads 646800 1584000 2230800 Total Manufacturing Cost 2232300 5760000 7992300 Product Margin 497700 792000 1289700

Determination of Activity Rate Activty Pool Estimated OH Supporing direct Labor 699660 Batch setup 660000 Prodcut Sustainind 780000 Base Activity Rate 101400 6.90 550 1200 2 390000 Activity Based Costing System Xtreme Pathfinder Total sales 2730000 6552000 9282000 Direct Material 1350300 3600000 4950300 Direct Labor 235200 5760001 8112001 Supporing direct Labor 202860 496800 699660 Batch setup 384000 276000 660000 Prodcut Sustainind 390000 390000 780000 Total Cost 2562360 5338800 7901160 Product Margin 167640 1213200 1380840