Question

*all one problem, just alot of pictures*

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 $ 63.30 $ 17.00 1.7 DLHS 22.00 units Pathfinder $ 87.00 $ 52.ee $ 10.00 1. DLHS 76,000 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 $ 1,927,800 113,400 OLHS 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) Activities and Activity Measures CAR Hash Estimated Expected Activity Overhead Cost Xtreme Pathfinder Total

Answer 1

Solution 1:
Overhead Allocation - Traditional Costing System
Particulars	Xtreme	Pathfinder	Total
Estimated annual Production (In units)	22000	76000
Direct Labour Hours Per unit	1.7	1
Total Direct Labour Hours	37400	76000	113400
Overhead Cost Allocation basis direct labour hours (Overhead / Total hours * Labor hours of model)	$635,800.00	$1,292,000.00	$1,927,800.00
Manufacturing overhead cost per unit (Allocated Overhead / Nos of units)	$28.90	$17.00

Computation of Product Margin - Traditional Costing System
Particulars	Xtreme	Pathfinder	Total
Selling price per unit	$120.00	$87.00
Direct material per unit	$63.30	$52.00
Direct labor per unit	$17.00	$10.00
Manufacturing overhead cost per unit	$28.90	$17.00
Product Margin per unit	$10.80	$8.00
Nos of units sold	22000	76000
Total Margin (Product margin per unit * Nos of unit sold)	$237,600.00	$608,000.00	$845,600.00

Solution 2:
Determination of activity rate for each activity & allocation of overhead
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Xtreme	Pathfinder
Usage	Allocated Costs	Usage	Allocated Costs
Supporting direct labor cost	$703,080.00	Direct Labor hours	113400	$6.20	37400	$231,880.00	76000	$471,200.00
Batch Setups	$480,000.00	Setups	400	$1,200.00	220	$264,000.00	180	$216,000.00
Product sustaining	$700,000.00	Number of products	2	$350,000.00	1	$350,000.00	1	$350,000.00
Other	$44,720.00	No allocation
Total	$1,927,800.00					$845,880.00		$1,037,200.00
Nos of units						22000		76000
Allocated overhead per unit						$38.45		$13.65

Computation of Product Margin - Activity based Costing System
Particulars	Xtreme	Pathfinder	Total
Selling price per unit	$120.00	$87.00
Direct material per unit	$63.30	$52.00
Direct labor per unit	$17.00	$10.00
Allocated Manufacturing overhead cost per unit	$38.45	$13.65
Product Margin per unit	$1.25	$11.35
Nos of units sold	22000	76000
Total Margin (Product margin per unit * Nos of unit sold)	$27,520.00	$862,800.00	$890,320.00