Question

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 on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Estimated total manufacturing overhead	$	1,927,800
Estimated total direct labor-hours		113,400	DLHs

Required:

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):

	Estimated Overhead Cost			Expected Activity
Activities and Activity Measures				Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	703,080		37,400	76,000	113,400
Batch setups (setups)		480,000		220	180	400
Product sustaining (number of products)		700,000		1	1	2
Other		44,720		NA	NA	NA
Total manufacturing overhead cost	$	1,927,800

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.

repare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place.)

Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Direct materials % % Direct labor % % Manufacturing overhead % % Total cost assigned to products $0 $0 $0 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct materials % % Direct labor % % Indirect costs: Supporting direct labor % % Batch setups % % Product sustaining % % Total cost assigned to products $0 $0 $0 Costs not assigned to products: Other Total cost $0

Answer 1

1. The Margin calculated as per Traditional Costing is 9% for Xtreme and 9.195% for Pathfinder

2. The Margin Calculated as per Activity Based Costing is 7.5% for Xtreme and 9.79% for Pathfinder

3. The comparative Statement prepared is attached herewith

Assumption : Cost stated as Other in Manufacturing Overheads is considered in all calculation, since it was a part of Manufacturing Overhead it is advised to use that cost while calculate the Margins of Each product separately. Since here no basis was given to allocate such cost, it was allocated equally in Pathfinder and Xtreme