Question

Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:

	Xtreme			Pathfinder
Selling price per unit	$	115.00		$	85.00
Direct materials per unit	$	63.90		$	51.00
Direct labor per unit	$	12.00		$	10.00
Direct labor-hours per unit		1.2	DLHs		1.0	DLHs
Estimated annual production and sales		28,000	units		75,000	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	$	2,063,400
Estimated total direct labor-hours		108,600	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 Overhead Cost			Expected Activity
Activities and Activity Measures				Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	673,320		33,600	75,000	108,600
Batch setups (setups)		520,000		280	240	520
Product sustaining (number of products)		790,000		1	1	2
Other		80,080		NA	NA	NA
Total manufacturing overhead cost	$	2,063,400

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

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place.) Total Xtreme % of Amount Total Amount Pathfinder % of Amount Total Amount Amount Traditional Cost System % % Total cost assigned to products $ $ 0 Total Xtreme % of Amount Total Amount Pathfinder % of Amount Total Amount Amount Activity-Based Costing System Direct costs: Indirect costs: % Total cost assigned to products Costs not assigned to products: $ 0 $ 0 $ Total cost

Answer 1

Answers 1 Product Margin under Traditional Costing Xtreme | Pathfinder Prodcut Margin 456400 375000 2 Product Margin under Activity Based costing | Xtreme Pathfinder Prodcut Margin 211480 700000 Total 831400 Total 911480

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 17892001 31.9% 3825000 68.1% 5614200 DirectLabor 336000 30.9% 750000 69.1% 1086000 Manufacturing Overheads 638400 30.9% 1425000 69.1% 2063400 Cost Assigned to Prodcut 2763600 6000000 8763600 der Quantitative Comparison of Acticity Based Cost Assignments Xtreme Pathfinder Total Activty Based Costing System Amount % Amount | Direct Cost Direct Material 1789200 31.9% 3825000 68.1% 5614200 Direct Labor 336000 30.9% 750000 69.1% 1086000 Indirect Cost Supporing direct Labor 208320 30.9% 465000 69.1% 673320 Batch setup 280000 53.8% 240000 46.2% 520000 Prodcut Sustainind 395000 50.0% 395000 50.0% 790000 Total Cost Assigned to Products 3008520 5675000 8683520 Cost Not asigned to the Products Other 80080 Total Cost 8763600

Working Notes Xtreme Selling Price 115.00 Direct Material 63.90 Direct Labor 12.00 Dirct Labou hour Per unit 1.20 Estimated Production 28000 Pathfinder 85.00 51.00 10.00 1.00 75000 Estimated MOH Estimated Labor hours Predetermined Overhead Rate Total Direct Labor Hours = (Units * Direct Labor Hour) 2063400 108600 19.00 2063400/108600 Xtreme Pathfinder Total 33600 75000 108600 Traditional Costing System Xtreme Pathfinder Total sales 3220000 6375000 9595000 Direct Material 1789200 3 825000 5614200 Direct Labor 336000 750000 1086000 Manufacturing Overheads 638400 1425000 2063400 Total Manufacturing Cost 2763600 6000000 8763600 Product Margin 456400 375000 831400

Determination of Activity Rate Activty Pool Estimated OH Supporing direct Labor 673320 Batch setup 520000 Prodcut Sustainind 790000 Base Activity Rate 108600 6.20 520 1000 - 2 395000 Activity Based Costing System Xtreme Pathfinder Total sales 3220000 6375000 9595000 Direct Material 1789200 3825000 5614200 Direct Labor 336000 750000 1086000 Supporing direct Labor 208320 465000 673320 Batch setup 280000 240000 520000 Prodcut Sustainind 395000 395000 790000 Total Cost 3008520 5675000 8683520 Product Margin 211480 700000 911480