Reference no: EM133392348

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	$	140.00		$	99.00
Direct materials per unit	$	72.00		$	53.00
Direct labor per unit	$	24.00		$	12.00
Direct labor-hours per unit		2.0	DLHs		1.0	DLHs
Estimated annual production and sales		20,000	units		80,000	units

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. 

Estimated total manufacturing overhead	$1,980,000
Estimated total direct labor-hours	120,000 DLHs

    1. Compute the product margins for the Xtreme 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):     

Activities  and (activity measures)		Estimated Overhead Costs	Expected Activities
			Xtreme	Pathfinder	Total
Supporting direct labor (number of DLH)		783,600	40,000	80,000	120,000
Batch setups (number of setups)		495,000	200	100	300
Product sustaining (number of products)		602,400	1	1	2
Other--organization sustaining		99,000	NA	NA	NA
Total Manufacturing Cost		$1,980,000

Compute the ABC product margins for Xtreme and Pathfinder.

   3. Prepare quantitative comparison of the traditional and ABC costing methods.  Explain why the traditional and ABC costs differ.