Problem 7-17 (Algo) Comparing Traditional and Activity-Based Product Margins (L07-1, L07-3, L07-4, LO7-5) Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below: Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales Xtreme $132.00 $ 64.60 $ 9.60 1.2 DLHS 24,000 units Pathfinder $ 94.00 $ 53.00 $ 8.00 1.0 DLHS 70,000 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 Estimated total direct labor-hours $ 2,470,000 98,800 DLHS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. 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): Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining number of products) Other Total manufacturing overhead cost Estimated Overhead Cost $ 642,200 915,000 840,000 72,800 $ 2,470,000 Expected Activity Xtreme Pathfinder Total 28,800 70,000 98,800 350 260 610 1 1 2 NA NA NA Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Xtreme Pathfinder Total Product margin Required 1 Required 2 Required 3 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.) Xtreme Pathfinder Total Product margin Required 1 Required 2 Required 3 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 places and "Percentage" answers to 1 decimal place.) Xtreme Total % of Pathfinder % of Amount Total Amount Amount Total Amount Amount Traditional Cost System % % % % % % Total cost assigned to products Xtreme Total % of Pathfinder % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % Indirect costs: % % % % % Total cost assigned to products Costs not assigned to products: Total cost
