home/study/business/accounting/questions and answers/ 5) smoky mountain corporation makes two types of ...

Question: 5) Smoky Mountain Corporation makes two types of h...

5)

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

Xtreme	Pathfinder
Selling price per unit	$ 140.00	$ 99.00
Direct materials per unit	$ 72.00	$ 53.00
Direct labor per unit	$24.00	$ 12.00
Direct labor-hours per unit	2.0 DLHS	1.0 DHLS
Estimated annual production and sales	20,000 units	80,000 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 $2,033,000

Estimated total direct labor-hours 107,000 DLHs

Required:

1.Using Exhibit 6-13 as a guide Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system.

1.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

Expected Activity

Activities and Activity Measures

Overhead Cost

Xtreme

Pathfinder

Total

Supporting direct labor (direct labor-hours)

$

783,600

40,000

80,000

120,000

Batch setups (setups)

495,000

200

100

300

Product sustaining (number of products)

602,400

1

1

2

Other

99,000

NA

NA

NA

Total manufacturing overhead cost

$

1,980,000

Using exhibit 6 -11 as a guide, Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system

Using exhibit 6 -14 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignments. Explain why the traditional and activity based cost assignments differ.