EXERCISE 4–10 Contrasting ABC and Conventional Product Costs LO4–2, LO4–3, LO4–4 Rocky Mountain Corporation makes two types of hiking boots

—Xactive and Pathbreaker. Data concerning these two product lines appear below:

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct laborhours.

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

. . . $2,200,000

. . . . . . . . 110,000 DLHs Required:

1. Compute the predetermined overhead rate based on direct laborhours.

Using this rate and other data from the problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

Estimated Overhead Cost Expected Activity Activity Cost Pools and

(Activity Measures) Xactive Pathbreaker Total

$ 797,500 35,000 75,000 110,000

(direct laborhours)

Batch setups

(setups)

Product sustaining

(number of products)

General factory

(machinehours)

Total manufacturi ng overhead cost Estimated Overhead Cost Expected Activity Activity Cost Pools and

(Activity Measures) Xactive Pathbreaker Total 680,000 250 150 400 650,000 1 1 2 72,500 2,500 7,500 10,000

$ 2,200,000 Determine the activity rate for each of the four activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

4. Explain why the conventional and activity-based cost assignments differ.