PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins L07-1, L07-3, 407-4, CL07-5 Smoky Mountain Corporation makes two types of hiking boots-the Xtreme 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 DLHS 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 $1,980,000 Estimated total direct labor-hours 120,000 DLHS Required: 1. Using Exhibit 7-13 as a guide, 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 Expected Activity Overhead Cost Xtreme Pathfinder Total $ 783,600 40,000 80,000 120.000 495,000 200 100 300 602,400 1 1 2 99,000 NA NA $1,980,000 NA Using Exhibit 7-11 as a guide, compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system 3. Using Exhibit 7-14 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