Question
In: Accounting
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two...
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 | $ | 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. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:
| Estimated total manufacturing overhead | $ | 1,980,000 | ||
| Estimated total direct labor-hours | 120,000 | DLHs | ||
Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places.)
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 | Activity | ||||||||||||
| Activities and Activity Measures | Overhead Cost | Xtreme | Pathfinder | Total | |||||||||
| Supporting direct labor (direct labor-hours) | $ | 783,600 | 40,000 | 80,000 | 120,000 | ||||||||
| Batch setups (setups) | 495,000 | 200 | 100 | 300 | |||||||||
| Product sustaining (number of products) | 602,400 | 1 | 1 | 2 | |||||||||
| Other | 99,000 | NA | NA | NA | |||||||||
| Total manufacturing overhead cost | $ | 1,980,000 | |||||||||||
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your "Percentage" answers to 1 decimal place. (i.e. .1234 should be entered as 12.3))
Solutions
Expert Solution
| Overhead Rate as per Traditional costing =$1,980,000 / 120,000 =$16.50 per hour | |||||
| Computation of Product Margin | |||||
| Xtreme | Pathfinder | Total | |||
| Selling price per unit | $ 140.00 | $ 99.00 | |||
| Direct material per unit | $ 72.00 | $ 53.00 | |||
| Direct labor per unit | $ 24.00 | $ 12.00 | |||
| Overhead Cost per unit | $ 33.00 | $ 16.50 | |||
| Product margin per unit | $ 11.00 | $ 17.50 | |||
| Production | 20000 | 80000 | |||
| Total Product Margin | $ 2,20,000 | $ 14,00,000 | $ 16,20,000 | ||
| Computation of ABC rate | |||||
| Activity | OH Costs(Col 1) | No. of activity base(Col 2) | Activity Rate(Col 1 / Col 2) | ||
| Supporting Direct labor | $ 7,83,600 | 1,20,000 | $ 6.53 | per labor hrs. | |
| Batch setups | $ 4,95,000 | 300 | $ 1,650.00 | per setups | |
| Product Sustaining | $ 6,02,400 | 2 | $ 3,01,200.00 | per product | |
| Total Cost | $ 18,81,000 | ||||
| Xtreme | Pathfinder | ||||
| Activity Based usage | Activity Based usage*ABC rate | Activity Based usage | Activity Based usage*ABC rate | ||
| Supporting Direct labor | 40000 | $ 2,61,200.00 | 80000 | $ 5,22,400.00 | |
| Batch setups | 200 | $ 3,30,000.00 | 100 | $ 1,65,000.00 | |
| Product Sustaining | 1 | $ 3,01,200.00 | 1 | $ 3,01,200.00 | |
| Total Overhead Cost allocated | $ 8,92,400.00 | $ 9,88,600.00 | |||
| Production | 20000 | 80000 | |||
| Overhead Cost per unit | $ 44.62 | per unit | $ 12.36 | ||
| Computation of Product Margin | |||||
| Xtreme | Pathfinder | Total | |||
| Selling price per unit | $ 140.00 | $ 99.00 | |||
| Direct material per unit | $ 72.00 | $ 53.00 | |||
| Direct labor per unit | $ 24.00 | $ 12.00 | |||
| Overhead Cost per unit | $ 44.62 | $ 12.36 | |||
| Product margin per unit | $ -0.62 | $ 21.64 | |||
| Production | 20000 | 80000 | |||
| Total Product Margin | $ -12,400 | $ 17,31,400 | $ 17,08,500 | ||
| Note:Other Cost of $99,000 has not been considered when calculating the margin of product | |||||
| Xtreme | Pathfinder | Total | |||
| Amount | % of Total amount | Amount | % of Total amount | Amount | |
| Traditional Costing System | |||||
| Direct Materials | $ 14,40,000.00 | 55.8% | $ 42,40,000.00 | 65.0% | $ 56,80,000.00 |
| Direct labor | $ 4,80,000.00 | 18.6% | $ 9,60,000.00 | 14.7% | $ 14,40,000.00 |
| Overhead Costs | $ 6,60,000.00 | 25.6% | $ 13,20,000.00 | 20.2% | $ 19,80,000.00 |
| Total Costs assigned to products | $ 25,80,000.00 | 100.0% | $ 65,20,000.00 | 100.0% | $ 91,00,000.00 |
| Activity-Based Costing System | |||||
| Direct Costs: | |||||
| Direct Materials | $ 14,40,000.00 | 51.2% | $ 42,40,000.00 | 68.5% | $ 56,80,000.00 |
| Direct labor | $ 4,80,000.00 | 17.1% | $ 9,60,000.00 | 15.5% | $ 14,40,000.00 |
| Indirect Costs: | |||||
| Supporting Direct labor | $ 2,61,200.00 | 9.3% | $ 5,22,400.00 | 8.4% | $ 7,83,600.00 |
| Batch setups | $ 3,30,000.00 | 11.7% | $ 1,65,000.00 | 2.7% |
 ekkarill92 answered 7 months agoRelated SolutionsSmoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
120.00
$
87.00
Direct materials per unit
$
63.30
$
52.00
Direct labor per unit
$
17.00
$
10.00
Direct labor-hours per unit
1.7
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
76,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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 $ 124.00 $
88.00 Direct materials per unit $ 63.40 $ 53.00 Direct labor per
unit $ 14.40 $ 8.00 Direct labor-hours per unit 1.8 DLHs 1.0 DLHs
Estimated annual production and sales 23,000 units 70,000 units The
company has a traditional costing system in which manufacturing
overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
138.00
$
90.00
Direct materials
per unit
$
64.40
$
51.00
Direct labor per
unit
$
13.50
$
9.00
Direct
labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual
production and sales
22,000
units
73,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
120.00
$
87.00
Direct materials per unit
$
63.30
$
52.00
Direct labor per unit
$
17.00
$
10.00
Direct labor-hours per unit
1.7
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
76,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
120.00
$
87.00
Direct materials per unit
$
65.20
$
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
30,000
units
65,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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 $ 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...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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 $ 121.00 $
88.00 Direct materials per unit $ 64.70 $ 54.00 Direct labor per
unit $ 10.80 $ 9.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs
Estimated annual production and sales 25,000 units 71,000 units The
company has a traditional costing system in which manufacturing
overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
138.00
$
90.00
Direct materials per unit
$
64.40
$
51.00
Direct labor per unit
$
13.50
$
9.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
73,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
115.00
$
85.00
Direct materials
per unit
$
63.90
$
51.00
Direct labor per
unit
$
12.00
$
10.00
Direct
labor-hours per unit
1.2
DLHs
1.0
DLHs
Estimated annual
production and sales
28,000
units
75,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these...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
$
120.00
$
87.00
Direct materials per unit
$
63.30
$
52.00
Direct labor per unit
$
17.00
$
10.00
Direct labor-hours per unit
1.7
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
76,000
units
The company has a traditional costing system in which
manufacturing overhead is applied to units based...
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