Question
In: Accounting
Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Smoky Mountain Corporation makes...
Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]
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 | $ | 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 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) | $ | 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.
Solutions
ekkarill92 answered 3 years agoRelated Solutions
Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Smoky Mountain Corporation makes...
Problem 7-17 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
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
$
128.00
$
90.00
Direct materials per unit
$
63.10
$
50.00
Direct labor per unit
$
12.00
$
8.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
20,000
units
70,000
units
The company has a...
Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Smoky Mountain Corporation makes...
Problem 7-17 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
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
$
83.00
Direct materials per unit
$
65.10
$
50.00
Direct labor per unit
$
10.00
$
10.00
Direct labor-hours per unit
1.0
DLHs
1.0
DLHs
Estimated annual production and sales
29,000
units
71,000
units
The company has a...
Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Smoky Mountain Corporation makes...
Problem 7-17 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5] 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 $ 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...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,689,500
Cost of goods sold
1,207,358
Gross margin
482,142
Selling and administrative expenses
630,000
Net operating loss
$
(147,858
)
Hi-Tek produced and sold 60,100 units of B300 at a price of $20
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,645,900
Cost of goods sold
1,245,980
Gross margin
399,920
Selling and administrative
expenses
570,000
Net operating loss
$
(170,080
)
Hi-Tek produced and sold 60,100 units of B300 at a price of $19
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,714,000
Cost of goods sold
1,215,528
Gross margin
498,472
Selling and administrative expenses
560,000
Net operating loss
$
(61,528
)
Hi-Tek produced and sold 60,500 units of B300 at a price of $20
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,695,300
Cost of goods sold
1,224,445
Gross margin
470,855
Selling and administrative expenses
560,000
Net operating loss
$
(89,145
)
Hi-Tek produced and sold 60,000 units of B300 at a price of $20
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,695,300
Cost of goods sold
1,224,445
Gross margin
470,855
Selling and administrative expenses
560,000
Net operating loss
$
(89,145
)
Hi-Tek produced and sold 60,000 units of B300 at a price of $20
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing Inc. makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing Inc. makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown below:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,649,900
Cost of goods sold
1,209,425
Gross margin
440,475
Selling and administrative expenses
560,000
Net operating loss
$
(119,525)
Hi-Tek produced and sold 60,100 units of B300 at a price of $19
per unit...
Problem 7-16 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Hi-Tek Manufacturing, Inc., makes...
Problem 7-16 Comparing Traditional and Activity-Based Product
Margins [LO7-1, LO7-3, LO7-4, LO7-5]
Hi-Tek Manufacturing, Inc., makes two types of industrial
component parts—the B300 and the T500. An absorption costing income
statement for the most recent period is shown:
Hi-Tek Manufacturing Inc.
Income Statement
Sales
$
1,691,500
Cost of goods sold
1,247,807
Gross margin
443,693
Selling and administrative
expenses
560,000
Net operating loss
$
(116,307
)
Hi-Tek produced and sold 60,200 units of B300 at a price of $20
per unit...
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