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 $123.00 $ 63.80 $ 10.80 1.2 DLHS 27,000 units Pathfinder $ 86.00 $ 50.00 $ 9.00 1.0 DLHS 74.000 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 $ 2,340,800 106,400 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): Activities and lotivity Measures Supporting direct labor (direct labor-hours) Batch setupe (netupa) Estimated Expected Activity Overhead Cost Xtreme Pathfinder Total $ 691,600 32.400 74.000 106.400 900,000 270 230 500

Answer 1

1)	overhead rate
	estimated MOH/estimated DLH's
	2,340,800/106,400
	22	per direct labor hour
	product margin
				Xtreme	pathfinder	total
	sales			3321000	6364000
	less:Expense
	Direct materials			1722600	3700000
	Direct labor			291600	666000
	overhead			712800	1628000
	total cost			2727000	5994000
	product margin			594000	370000	964000
				Xtreme	pathfinder	total
	product margin			594000	370000	964000	answer
2)	overhead rate					oh rate
				amount	driver
	Activity
	Supporting direct labor			691,600	106,400	6.5
	batch setups			900,000	500	1800
	product sustaining			700,000	2	350000
	allocation of overhead and per unit cost
				Xtremet		Pathfinder
			Rate	driver	OH	Rate	Driver	OH
	Activity
	Supporting direct labor		6.5	32,400	210600	6.5	74,000	481000
	batch setups		1800	270	486000	1800	230	414000
	product sustaining		350000	1	350000	350000	1	350000
	total overhead				1046600			1245000
	product margin
				Xtreme	pathfinder	total
	Selling price per unit			3321000	6364000
	less:Expense
	Direct materials			1722600	3700000
	Direct labor			291600	666000
	total overhead			1046600	1245000	2291600
	total cost			3060800.00	5611000.00
	product margin			260200.00	753000.00	1013200.00
				Xtreme	pathfinder	total
	product margin			260200	753000	1013200	answer
	3)			Xtreme		Pathfinder		total
					% of		% of
				Amount	total amount	Amount	total amount	Amount
	Traditional Cost system
	Direct materials			1722600	31.8%	3700000	68.2%	5422600
	direct labor			291600	30.5%	666000	69.5%	957600
	manufacturing overhead			712800	30.5%	1628000	69.5%	2340800
	total cost assigned to produts			2727000		5994000		8721000
				Xtreme		Pathfinder		total
					% of		% of
				Amount	total amount	Amount	total amount	Amount
	Activity based
	Direct materials			1722600	31.8%	3700000	68.2%	5422600
	direct labor			291600	30.5%	666000	69.5%	957600
	indirect costs
	Supporting direct labor			210600	30.5%	481000	69.5%	691600
	batch setups			486000	54.0%	414000	46.0%	900000
	product sustaining			350000	50.0%	350000	50.0%	700000
	total cost assigned to products			3060800		5611000		8671800
	costs not assigned to products
	other							49,200
	total cost.							8721000