Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5]

Smoky Mountain Corporation makes two types of hiking bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:

Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, L07-4, L07-5] 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 Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales $ 128.00 $ 63.10 $ 12.00 $ 90.00 $ 50.00 $ 8.00 1.5 DLHs 1.0 DLHs 20,000 units 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 $ 2,100,000 100,000 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) Estimated Expected Activity Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other Overhead Cost Xtreme Pathfinder Total $745,000 612,000 700,000 43,000 $. 2,100,000 30,000 70,000 160 100,000 360 200 NA NA NA Total manufacturing overhead cost 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