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 $ 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

Answer 1

Answers 1 Product Margin under Traditional Costing Xtreme Pathfinder Prodcut Margin 464000 304000 2 Product Margin under Activity Based costing | Xtreme | Pathfinder Prodcut Margin 268700 539200 Total 768000 Total 807900

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Xtreme Pathfinder Total Traditional Costing System Amount % Amount % Direct Material 1856000 32.0% 3952000 68.0% 5808000 DirectLabor 348000 36.4% 608000 63.6% 956000 Manufacturing Overheads 696000 36.4% 1216000 63.6% 1912000 Cost Assigned to Prodcut 2900000 5776000 8676000 Quantitative Comparison of Acticity Based Cost Assignments Xtreme Pathfinder Total Activty Based Costing System Amount % Amount % Direct Cost Direct Material 1856000 32.0% 3952000 68.0% 5808000 Direct Labor 348000 36.4% 608000 63.6% 956000 Indirect Cost Supporing direct Labor 252300 36.4% 440800 63.6% 693100 Batch setup 319000 59.2% 220000 40.8% 539000 Prodcut Sustainind 320000 50.0% 320000 50.0% 640000 Total Cost Assigned to Products 3095300 5540800 8636100 Cost Not asigned to the Products Other 39900 Total Cost 8676000)

Working Notes Xtreme Selling Price 116.00 Direct Material 64.00 Direct Labor 12.00 Dirct Labou hour Per unit 1.50 Estimated Production 29000 Pathfinder 80.00 52.00 8.00 1.00 76000 Estimated MOH Estimated Labor hours Predetermined Overhead Rate Total Direct Labor Hours =(Units * Direct Labor Hour) 1912000 119500 16.00 1912000/119500 Xtreme Pathfinder Total 43500 76000 119500 Traditional Costing System Xtreme Pathfinder Total sales 3364000 6080000 9444000 Direct Material 1856000 3952000 5808000 Direct Labor 348000 608000 956000 Manufacturing Overheads 696000 12160001912000 Total Manufacturing Cost 2900000 5776000 8676000 Product Margin 464000 304000 768000

Determination of Activity Rate Activty Pool Estimated OH Supporing direct Labor 693100 Batch setup 539000 Prodcut Sustainind 640000 Base Activity Rate 119500 5.80 490 1100 2 320000 Activity Based Costing System Xtreme Pathfinder Total sales 3364000 6080000 9444000 Direct Material 1856000 3952000 5808000 Direct Labor 348000 608000 956000 Supporing direct Labor 252300 440800 693100 Batch setup 319000 220000 539000 Prodcut Sustainind 320000 320000 640000 Total Cost 3095300 5540800 8636100 Product Margin 268700 539200 807900