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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 $ 86.00
Direct materials per unit $ 65.30 $ 52.00
Direct labor per unit $ 13.50 $ 9.00
Direct labor-hours per unit 1.5 DLHs 1.0 DLHs
Estimated annual production and sales 31,000 units 65,000 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 $ 2,230,000
Estimated total direct labor-hours 111,500 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) $ 724,750 46,500 65,000 111,500
Batch setups (setups) 975,000 420 330 750
Product sustaining (number of products) 470,000 1 1 2
Other 60,250 NA NA NA
Total manufacturing overhead cost $ 2,230,000

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 hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:

Xtreme Pathfinder
Selling price per unit $ 121.00 $ 86.00
Direct materials per unit $ 65.30 $ 52.00
Direct labor per unit $ 13.50 $ 9.00
Direct labor-hours per unit 1.5 DLHs 1.0 DLHs
Estimated annual production and sales 31,000 units 65,000 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 $ 2,230,000
Estimated total direct labor-hours 111,500 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) $ 724,750 46,500 65,000 111,500
Batch setups (setups) 975,000 420 330 750
Product sustaining (number of products) 470,000 1 1 2
Other 60,250 NA NA NA
Total manufacturing overhead cost $ 2,230,000

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.

Xtreme Pathfinder Total
% of % of
Amount Total Amount Amount Total Amount Amount
Traditional Cost System
% %
% %
% %
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:
% %
% %
Indirect costs:
% %
% %
% %
Total cost assigned to products $0 $0 $0
Costs not assigned to products:
Total cost $0

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