Compute the product margins for the extreme

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Reference no: EM13949212

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	$	138.00		$	90.00
Direct materials per unit	$	64.40		$	51.00
Direct labor per unit	$	13.50		$	9.00
Direct labor-hours per unit		1.5	DLHs		1.0	DLHs
Estimated annual production and sales		22,000	units		73,000	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	$2,438,000
Estimated total direct labor-hours	106,000 DLHs

1.Compute the product margins for the Extreme 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		Expected Activity
Activities and Activity Measures	Overhead Cost		Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	646,600	33,000	73,000	106,000
Batch setups (setups)		969,000	330	240	570
Product sustaining (number of products)		780,000	1	1	2
Other		42,400	NA	NA	NA

Total manufacturing overhead cost	$	2,438,000

-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

Reference no: EM13949212

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