Question

Smoky Mountain Corporation makes two types of hiking boots-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 $ 116.00 $ 64.00 $ 12.00 1.5 DLHS 29,000 units Pathfinder $ 80.00 $ 52.00 $ 8.00 1.0 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 $1,912,000 119,500 DLHS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Do not round your intermediate calculations.) Xtreme Pathfinder Total Product margin 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): Xtreme 43,500 Estimated Overhead Cost $ 693,100 539,000 640,000 39,900 $ 1,912,000 Activity Pathfinder 76,000 200 Total 119,500 490 Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Total manufacturing overhead cost 290 NA

Answer 1

1)	overhead rate
	estimated MOH/estimated DLH's
	1912000/119500
	16	per direct labor hour
	product margin
				Xtreme	pathfinder	total
	sales			3364000	6080000
	less:Expense
	Direct materials			1856000	3952000
	Direct labor			348000	608000
	overhead			696000	1216000
	total cost			2900000	5776000
	product margin			464000	304000	768000
				Xtreme	pathfinder	total
	product margin			464000	304000	768000	answer
2)	overhead rate					oh rate
				amount	driver
	Activity
	Supporting direct labor			693,100	119,500	5.8
	batch setups			539,000	490	1100
	product sustaining			640,000	2	320000
	allocation of overhead and per unit cost
				Xtremet		Pathfinder
			Rate	driver	OH	Rate	Driver	OH
	Activity
	Supporting direct labor		5.8	43,500	252300	5.8	76,000	440800
	batch setups		1100	290	319000	1100	200	220000
	product sustaining		320000	1	320000	320000	1	320000
	total overhead				891300			980800
	product margin
				Xtreme	pathfinder	total
	Selling price per unit			3364000	6080000
	less:Expense
	Direct materials			1856000	3952000
	Direct labor			348000	608000
	total overhead			891300	980800	1872100
	total cost			3095300.00	5540800.00
	product margin			268700.00	539200.00	807900.00
				Xtreme	pathfinder	total
	product margin			268700	539200	807900	answer
	3)			Xtreme		Pathfinder		total
					% of		% of
				Amount	total amount	Amount	total amount	Amount
	Traditional Cost system
	Direct materials			1856000	32.0%	3952000	68.0%	5808000
	direct labor			348000	36.4%	608000	63.6%	956000
	manufacturing overhead			696000	36.4%	1216000	63.6%	1912000
	total cost assigned to produts			2900000		5776000		8676000
				Xtreme		Pathfinder		total
					% of		% of
				Amount	total amount	Amount	total amount	Amount
	Activity based
	Direct materials			1856000	32.0%	3952000	68.0%	5808000
	direct labor			348000	36.4%	608000	63.6%	956000
	indirect costs
	Supporting direct labor			252300	36.4%	440800	63.6%	693100
	batch setups			319000	59.2%	220000	40.8%	539000
	product sustaining			320000	50.0%	320000	50.0%	640000
	total cost assigned to products			3095300		5540800		8636100
	costs not assigned to products
	other							39,900
	total cost.							8676000