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| Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below: |
| Xtreme | Pathfinder | |||||
| Selling price per unit | $ | 120.00 | $ | 80.00 | ||
| Direct materials per unit | $ | 64.80 | $ | 50.00 | ||
| Direct labor per unit | $ | 13.00 | $ | 10.00 | ||
| Direct labor-hours per unit | 1.3 | DLHs | 1.0 | DLHs | ||
| Estimated annual production and sales | 26,000 | units | 72,000 | 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 | $1,904,400 | ||
| Estimated total direct labor-hours | 105,800 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.) |
| 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 | Expected Activity | ||||
| Activities and Activity Measures | Overhead Cost | Xtreme | Pathfinder | Total | |
| Supporting direct labor (direct labor-hours) | $ | 581,900 | 33,800 | 72,000 | 105,800 |
| Batch setups (setups) | 650,000 | 370 | 280 | 650 | |
| Product sustaining (number of products) | 600,000 | 1 | 1 | 2 | |
| Other | 72,500 | NA | NA | NA | |
| Total manufacturing overhead cost | $ | 1,904,400 | |||
| Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.) |
| 3. | Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your “Percentage” answer to 1 decimal place. (i.e. .1234 should be entered as 12.3)) |
Expert Answer
