Contrasting ABC and Conventional Product Costs

Rocky Mountain Corporation makes two types of hiking bootsXactive and Pathbreaker. Data concern- ing these two product lines appear below: Direct materials per unit ................ $64.80 $51.00 Direct labor cost per unit ............... $18.20 $13.00 Direct labor-hours per unit .............. 1.4 DLHs 1.0 DLHs Estimated annual production and sales . . . . 25,000 units 75,000 units The company has a conventional 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 cvemead ...... $2,200,000 Estimated total direct labor-hours ............ 110,000 DLHs Required: 1. Compute the predetermined overhead rate based on direct labor-hours. 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: 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