Practice Problem 2: Rocky Mountain Corporation makes two types of hiking boots-Xactive and Pathbreaker. Data concerning these two product lines appear below: Xactive Pathbreaker Selling price per unit........ Direct materials per unit ........ Direct labour perunt. Direct labour hours per unit. Estimated annual production and sales..... $12700 $6480 $18.20 14 DLHS 25.000 units $89.00 $5100 SREDO 10 DLHS 75.000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labour hours. Data concerning manufacturing overhead and direct labour-hours for the upcoming year appear below: Estimated total manufacturing overhead........................... 52,200,000 Estimated total direct labour hours...... 110,000 DLHS a. Compute the product margins for Xactive and Pathbreaker products under the company's traditional costing system. b. The company is considering replacing its traditional costing system with an ABC 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 Overhead Cost $ 797.500 Expected Activity Xactive Pathbreaker 35.000 75.000 250 Total 10.000 Cost Pools and Activity Measures Supporting direct labour (direct labour hours)....... Batch setups (setups) Productsustaining (number of products)........ Other Total manufacturing overhead cost.... 50m esam 7.500 $2,200,000 Compute the product margins for Xactive and Pathbreaker products under the ABC system. c. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignments differ