Smoky Mountain Corporation makes two types of hiking bootsâthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme Pathfinder Selling price per unit $ 120.00 $ 92.00 Direct materials per unit $ 63.50 $ 54.00 Direct labor per unit $ 13.50 $ 9.00 Direct labor-hours per unit 1.5 DLHs 1.0 DLHs Estimated annual production and sales 24,000 units 71,000 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 $ 2,033,000 Estimated total direct labor-hours 107,000 DLHs
Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the companyâs 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
Overhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 663,400 36,000 71,000 107,000 Batch setups (setups) 572,000 240 200 440 Product sustaining (number of products) 750,000 1 1 2 Other 47,600 NA NA NA Total manufacturing overhead cost $ 2,033,000
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.
Smoky Mountain Corporation makes two types of hiking bootsâthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:
| Xtreme | Pathfinder | |||||
| Selling price per unit | $ | 120.00 | $ | 92.00 | ||
| Direct materials per unit | $ | 63.50 | $ | 54.00 | ||
| Direct labor per unit | $ | 13.50 | $ | 9.00 | ||
| Direct labor-hours per unit | 1.5 | DLHs | 1.0 | DLHs | ||
| Estimated annual production and sales | 24,000 | units | 71,000 | 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 | $ | 2,033,000 | ||
| Estimated total direct labor-hours | 107,000 | DLHs | ||
Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the companyâs 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 Overhead Cost | Expected Activity | |||||
| Activities and Activity Measures | Xtreme | Pathfinder | Total | |||
| Supporting direct labor (direct labor-hours) | $ | 663,400 | 36,000 | 71,000 | 107,000 | |
| Batch setups (setups) | 572,000 | 240 | 200 | 440 | ||
| Product sustaining (number of products) | 750,000 | 1 | 1 | 2 | ||
| Other | 47,600 | NA | NA | NA | ||
| Total manufacturing overhead cost | $ | 2,033,000 | ||||
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.
Related questions
Smoky Mountain Corporation makes two types of hikingboots%u2014Xtreme and the Pathfinder. Data concerning these twoproduct lines appear below: |
| Xtreme | Pathfinder | |
| Selling price per unit | $141 | $103 |
| Direct materials per unit | $59 | $45 |
| Direct labor per unit | $36 | $36 |
| Direct labor-hours per unit | 3 DLHs | 3 DLHs |
| Estimated annual production | 13,000 units | 74,000 units |
The company has a traditional costing system in which manufacturingoverhead is applied to units based on direct labor-hours. Dataconcerning manufacturing overhead and direct labor-hours for theupcoming year appear below: |
| Estimated total manufacturing overhead | $4,332,600 |
| Estimated total direct labor-hours | 261,000 DLHs |
| | |
| Requirement 2: |
The company is considering replacing its traditional costing systemwith an activity-based costing system that would assign itsmanufacturing overhead to the following four activity cost pools(the Other cost pool includes organization-sustaining costs andidle capacity costs): |
| Expected Activity | ||||
| Activities and Activity Measures | Estimated Overhead cost | Xtreme | Pathfinder | Total |
| Supporting direct labor (direct labor-hours) | $1,860,930 | 39,000 | 222,000 | 261,000 |
| Batch setups (setups) | 468,900 | 110 | 190 | 300 |
| Product sustaining (number of products) | 555,800 | 1 | 3 | 4 |
| Other | 1,446,970 | NA | NA | NA |
| Total manufacturing overhead cost | $4,332,600 | |||
Compute the product margins for the Xtreme and the Pathfinderproducts under the activity-based costing system. (Negative amount should be indicated by a minus sign. Do not roundyour intermediate calculations. Omit the "$" sign in yourresponse.) |
| Xtreme | Pathfinder | Total | |
| Product margin | $ | $ | $ |
