Comparing Traditional and Activity-Based Product Margins
Rocky Mountain Corporation make two types of hiking boots–Xactive and the Pathbreaker, Data concerning these two product lines appear below:
| Xactive | Pathbreaker | ||
Selling price per unit | $127.00 |
| $89.00 |
|
Direct materials per unit | $64.80 |
| $51.00 |
|
Direct labor per unit | $18.20 |
| 813.00 |
|
Direct labor-hours per unit | 1.4 | DLHs | 1.0 | DLHs |
Estimated annual production and sales | 25,000 | units | 75,060 | 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 | S2,200,000 |
Estimated total direct labor-hours | 110,000DLHs |
Required:
I. Using Exhibit 7- 12 as a guide, compute the product margins for the Xactive and the Pathbreaker 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):
|
| Expected Activity | ||
Activities and Activity Measures | Estimated Overhead Cost | Xactive | Pathbreaker | Total |
Supporting direct labor (direct labor-hours) | $ 797,500 | 35,000 | 75,000 | 110,000 |
Batch setups (setups) | 680,000 | 250 | 150 | 400 |
Product sustaining (number of products) | 650,000 | 1 | 1 | 2 |
Other | 72,500 | NA | NA | NA |
Total manufacturing overhead cost | $2,200,000 |
|
|
|
Using Exhibit 7- 10 as a guide, compute the product margins for the Xactive and the Pathbreaker products under the activity-based costing system.
3. Using Exhibit 7- 13 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignments differ.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.