In: Accounting
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 | $ | 65.40 | $ | 53.00 | ||
Direct labor per unit | $ | 16.00 | $ | 10.00 | ||
Direct labor-hours per unit | 1.6 | DLHs | 1.0 | DLHs | ||
Estimated annual production and sales | 32,000 | units | 60,000 | 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 | $ | 1,779,200 | ||
Estimated total direct labor-hours | 111,200 | 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) | $ | 556,000 | 51,200 | 60,000 | 111,200 | |
Batch setups (setups) | 770,000 | 430 | 340 | 770 | ||
Product sustaining (number of products) | 400,000 | 1 | 1 | 2 | ||
Other | 53,200 | NA | NA | NA | ||
Total manufacturing overhead cost | $ | 1,779,200 | ||||
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.
Complete this question by entering your answers in the tabs below.
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.)
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