Problem 6-18 Comparing Traditional and Activity-Based Product Margins [LO6-1, LO6-3, LO6-4, LO6-5]

Rocky Mountain Corporation makes two types of hiking bootsXactive and the Pathbreaker. Data concerning these two product lines appear below:

	Xactive	Pathbreaker
Selling price per unit	$	127.00		$	89.00
Direct materials per unit	$	64.80		$	51.00
Direct labor 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 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	$2,200,000
Estimated total direct labor-hours	110,000DLHs

Required:
1.	Compute the product margins for the Xactive and the Pathbreaker products under the companys traditional costing system.(Negative product margins should be indicated with a minus sign.)

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):

	Estimated	Expected Activity
Activities and Activity Measures	Overhead Cost	Xactive	Pathbreaker	Total
Supporting direct labor (direct labor-hours)	$	797,500	35,000	75,000	110,000
Batch setups (setups)		680,000	250	150	400
Product sustaining (number of products)		650,000	1	1	2
Other		72,500	NA	NA	NA
Total manufacturing overhead cost	$	2,200,000

Compute the product margins for the Xactive and the Pathbreaker products under the activity-based costing system.(Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)

3.	Prepare a quantitative comparison of the traditional and activity-based cost assignments.(Do not round intermediate calculations. Round your percentage answers to one decimal place.)

References eBook & Resources eBook: Activity-Based Costing: An Overview