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 $ 125.00 $ 64.20 $ 16.00 1.6 DLHS 25,000 units Pathfinder $91.00 5 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 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 Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Total manufacturing overhead cost Estimated Overhead Cost $ 888,000 583,000 750,000 30,000 $ 2,331,000 Expected Activity Xtreme Pathfinder Total 40,000 71,000 111,000 310 220 530 1 NA NA

Answer 1

Requirement 1:

Predetermined overhead rate = $2,331,000/111,000 = $21 per hour

Computation of Product Margin
Particulars	Xtreme	Pathfinder	Total
Selling price per unit	125	91
Direct material per unit	64.20	55
Direct labor per unit	16	10
Manufacturing overhead cost per unit (Direct labour hours per unit*$21)	33.60	21
Product Margin per unit (A)	11.20	5
No. of units sold (B)	25,000	71,000
Total Margin (A*B)	280,000	355,000	635,000

Please rate positively if this helped you :)