Reference no: EM131977118

Problem

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 $ 121.00 $ 85.00 Direct materials per unit $ 64.90 $ 51.00 Direct labor per unit $ 11.20 $ 8.00 Direct labor-hours per unit 1.4 DLHs 1.0 DLHs Estimated annual production and sales 27,000 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 $2,156,000 Estimated total direct labor-hours 107,800 DLHs.

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)	$	700,700	37,800	70,000	107,800
Batch setups (setups)		737,000	380	290	670
Product sustaining (number of products)		640,000	1	1	2
Other		78,300	NA	NA	NA
Total manufacturing overhead cost	$	2,156,000

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations.