Reference no: EM132587740
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 $ 132.00 $ 94.00
Direct materials per unit $ 64.60 $ 53.00
Direct labor per unit $ 9.60 $ 8.00
Direct labor-hours per unit 1.2 DLHs 1.0 DLHs
Estimated annual production and sales 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):
Estimated
Overhead Cost Expected Activity Activities and Activity Measures 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 quantitative comparison of the traditional and activity-based cost assignments.