Question

2. (cont.) Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.

Pathfinder $ 80.00 $50.00 $10.00 Xtreme Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales 120.00 $ 64.80 $13.00 1.3 DLHs 1.0 DLHs 26,000 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 Estimated total direct labor-hours 1,904,400 105,800 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 Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Overhead Cost Xtreme Pathfinder Total 105,800 650 $581,900 33,800 72,000 280 1 NA 650,000 600,000 72,500 $1,904,400 370 1 NA NA Total manufacturing overhead cost

Answer 1

2.

	Xtreme	Pathfinder	Total
Product margin $	241300	464000	705300

Workings:

Activity Cost Pool	Estimated Overhead $	Expected Use of Cost Drivers		Activity-Based Overhead Rate $
Supporting direct labor	581900	105800	DLH	5.50	per DLH
Batch setups	650000	650	setups	1000	per setup
Product sustaining	600000	2	products	300000	per product
Other	72500	NA		NA
Total	1904400

	Xtreme			Pathfinder
Activity Cost Pool	Expected Use of Drivers	Activity-Based Overhead Rates $	Cost Assigned $	Expected Use of Drivers	Activity-Based Overhead Rates $	Cost Assigned $
Supporting direct labor	33800	5.50	185900	72000	5.50	396000
Batch setups	370	1000	370000	280	1000	280000
Product sustaining	1	300000	300000	1	300000	300000
Total costs assigned			855900			976000

	Xtreme	Pathfinder
Sales	3120000	5760000
Less:
Direct materials	1684800	3600000
Direct labor	338000	720000
Manufacturing overhead	855900	976000
Total cost $	2878700	5296000
Product margin $	241300	464000