PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins L07-103. L07-3,L07-4 @,L07-5g 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 $140.00 $72.00 $24.00 Pathfinder $99.00 $53.00 $12.00 2.0 DLHs 1.0 DLHs 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 ycar appcar bclow: Estimated total manufacturing overhead Estimated total direct labor-hours $1,980,000 120,000 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): Expected Activity Estimated Overhead Cost Xtreme Pathfinder Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Total manufacturing overhead cost Total 120,000 300 $ 783,600 495,000 602,400 99,000 $1980,000 40,000 200 80,000 100 NA NA 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