L$07-5]$

Smoky Mountain Corporation makes two types of hiking boots$-$the Xtreme and the Pathfinder. Data concerning these two product

lines appear below:

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:

Required:

Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system.

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$)$:

Compute the product margins for the Xtreme and the Pathfinder products under the activity$-$based costing system.

Prepare a quantitative comparison of the traditional and activity$-$based cost assignments.