17.

Problem 7-17 (Algo) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]

Smoky Mountain Corporation makes two types of hiking bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:

	Xtreme		Pathfinder
Selling price per unit	$ 118.00		$ 84.00
Direct materials per unit	$ 65.00		$ 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	28,000	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	$ 1,819,000
Estimated total direct labor-hours	107,000	DLHs

Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the companys 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):

Activities and Activity Measures	Estimated Overhead Cost	Expected Activity
		Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$ 588,500	42,000	65,000	107,000
Batch setups (setups)	690,000	390	300	690
Product sustaining (number of products)	500,000	1	1	2
Other	40,500	NA	NA	NA
Total manufacturing overhead cost	$ 1,819,000

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.

Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place.) Xtreme Pathfinder % of Amount Total Amount Total Amount % of Total Amount Amount Traditional Cost System Total cost assigned to products Xtreme Pathfinder % of Total Amount Amount % of Total Amount Total Amount Amount Activity-Based Costing System Direct costs: Indirect costs Total cost assigned to products Costs not assigned to products: Total cost