Question

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

Estimated total manufacturing overhead	$	2,438,000
Estimated total direct labor-hours		106,000		DLHs

Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Do not round your intermediate calculations.)

	Xtreme Pathfinder Total Product margin $0

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)	$	646,600				33,000			73,000			106,000
Batch setups (setups)		969,000				330			240			570
Product sustaining (number of products)		780,000				1			1			2
Other		42,400				NA			NA			NA
Total manufacturing overhead cost	$	2,438,000

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.)

	Xtreme         Pathfinder         Total         Product margin         $0

Answer 1

1)	overhead rate
	estimated MOH/estimated DLH's
	2438000/106000
	23
	product margin
				Xtreme	pathfinder	total
	Selling price per unit			138	90
	less:Expense
	Direct materials per unit			64.4	51
	Direct labor per unit			13.5	9
	overhead pu (oh rate*DLH's pu)			34.5	23
	total unit cost			112.4	83
	product margin			25.6	7	32.6	answer
2)	overhead rate					oh rate
				amount	driver
	Activity
	Supporting direct labor			646,600	106,000	6.1
	batch setups			969,000	570	1700
	product sustaining			780,000	2	390000
	allocation of overhead and per unit cost
				Xtremet		Pathfinder
			Rate	driver	OH	Rate	Driver	OH
	Activity
	Supporting direct labor		6.1	33,000	201300	6.1	73,000	445300
	batch setups		1700	330	561000	1700	240	408000
	product sustaining		390000	1	390000	390000	1	390000
	total overhead				1152300			1243300
	total production				22,000			73,000
	overhead per unit				52.38			17.03
	product margin
				Xtreme	pathfinder	total
	Selling price per unit			138	90
	less:Expense
	Direct materials per unit			64.4	51
	Direct labor per unit			13.5	9
	overhead pu (oh rate*DLH's pu)			52.38	17.03
	total unit cost			130.28	77.03
	product margin			7.72	12.97	20.69	answer