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 $ 65.10 $ 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 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 $1,800,000 100,000 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 Expected Activity Overhead Cost Xtreme Pathfinder Total $ 520.000 29,000 71,000 100,000 781,000 400 310 440.000 59,000 NA NA NA $ 1,800,000 Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Total manufacturing overhead cost 710 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 this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Xtreme Pathfinder Total Product margin

Answer 1

	Smoky Mountain Corporation
	Unit Product cost under Traditional based costing
	Total Overhead/Activity base
	Total Overhead=(A)	$              18,00,000.00
	Direct Labor Hour=(B)	100000
	Predetermined Overhead rate=(A)/(B)	$                             18.00
		Xtreme	Pathfinder
	Direct Labor hour per unit=(A)	1	1
	Number of units produced and sales=(B)	29000	71000
	Direct Labor hours required=(A)*(B)	29000	71000
	Contribution Margin using Traditional Based Costing
1)		Xtreme	Pathfinder	Total
	Sales Revenue(29000 units @$115),(71000 units @$83)	$              33,35,000.00	$      58,93,000.00	$                             92,28,000.00
	Direct Materials(29000 units@$65.10),(71000 units @$50)	$              18,87,900.00	$      35,50,000.00	$                             54,37,900.00
	Direct Labor(29000 units @$10),(71000 units @$10)	$                 2,90,000.00	$         7,10,000.00	$                             10,00,000.00
	Manufacturing Overhead applied $18 per direct labor hours(29000*1*$18),(71000*1*$18)	$                 5,22,000.00	$      12,78,000.00	$                             18,00,000.00
	Total Manufacturing Cost	$              26,99,900.00	$      55,38,000.00	82,37,900.00
	Production Margin	$                 6,35,100.00	$         3,55,000.00	9,90,100.00
2)		(A)	(B)			(A)/(B)
	Activity cost pool	Estimated overhead cost	Expected Activity(**)			Activity Rate
	Supporting Direct Labor	$                 5,20,000.00	100000	Direct Labor Hours		$                       5.20	Per DLH
	Batch Setups	$                 7,81,000.00	710	setups		$               1,100.00	Per Setup
	Product Sustaining	$                 4,40,000.00	2	Number of Products		$         2,20,000.00	Per Product
	Total	$              17,41,000.00
	Oher activity cost pool not given and its includes to organization sustaining and idle capacity,so it should not be assigned to prodcuts.
	Product Margin under Activity Based Costing
		Xtreme	Pathfinder	Total
	Sales=(A)	$              33,35,000.00	$      58,93,000.00	$                             92,28,000.00
	Direct Material	$              18,87,900.00	$      35,50,000.00	$                             54,37,900.00
	Direct Labor	$                 2,90,000.00	$         7,10,000.00	$                             10,00,000.00
*	Supporting Direct Labor	$                 1,50,800.00	$         3,69,200.00	$                                5,20,000.00
**	Batch Setups	$                 4,40,000.00	$         3,41,000.00	$                                7,81,000.00
***	Product Sustaining	$                 2,20,000.00	$         2,20,000.00	$                                4,40,000.00
	Total cost=(B)	$              29,88,700.00	$      51,90,200.00	$                             81,78,900.00
	Prodcution Margin=(A)-(B)	$                 3,46,300.00	$         7,02,800.00	$                             10,49,100.00
		Xtreme	Pathfinder
*	Supporting Direct Labor	(29000*$5.20)	(71000*$5.20)
**	Batch Setups	(400*$1100)	(310*$1100)
***	Product Sustaining	(1*$220000)	(1*$220000)
3)	Quantitative Comparison
		Xtreme		Pathfinder		Total
		(A)	(A)/(C )	(B)	(B)/(C )	(C )
	Traditional Cost System
	Direct Material	$              18,87,900.00	34.72%	$                             35,50,000.00	65.28%	$      54,37,900.00
	Direct Labor	$                 2,90,000.00	29.00%	$                                7,10,000.00	71.00%	$      10,00,000.00
	Manufacturing Overhead	$                 5,22,000.00	29.00%	$                             12,78,000.00	71.00%	$      18,00,000.00
	Total cost assigned to Products	$              26,99,900.00		$                             55,38,000.00		$      82,37,900.00
	Activity Based Costing
	Direct Material	$              18,87,900.00	63.17%	$                             35,50,000.00	68.40%	$      54,37,900.00
	Direct Labor	$                 2,90,000.00	9.70%	$                                7,10,000.00	13.68%	$      10,00,000.00
	Supporting Direct Labor	$                 1,50,800.00	5.05%	$                                3,69,200.00	7.11%	$         5,20,000.00
	Batch Setups	$                 4,40,000.00	14.72%	$                                3,41,000.00	6.57%	$         7,81,000.00
	Product Sustaining	$                 2,20,000.00	7.36%	$                                2,20,000.00	4.24%	$         4,40,000.00
	Total cost assigned to products	$              29,88,700.00		$                             51,90,200.00		$      81,78,900.00
	Other					$            59,000.00
	Total cost					$      82,37,900.00