ACC 406 Chapter 7: Chapter7ACC.docx
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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 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 | $ | $ | $ |