Reference no: EM132475373

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               Pathfinder                                                                                                            $ 132.00         $ 94.00                                                                                                              $ 64.60        $ 53.00                                                                                                                $ 9.60        $  8.00 1.2 DLHs               1.0 DLHs 24,000 units       70,000 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 $ 2,470,000
Estimated total direct labor-hours 98,800 DLHs

Required:

Question 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system.

Question 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 Activity Measures	Estimated Overhead Cost	Expected Activity Xtreme Pathfinder    Total
Supporting direct labor (direct labor-hours)	$               642,200	28,800	70,000	98,800
Batch setups (setups)	915,000	350	260	610
Product sustaining (number of products)	840,000	1	1	2
Other	72,800	NA	NA	NA
Total manufacturing overhead cost	$ 2,470,000

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

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