Problem 7-17 (Static) Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, 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 Pathfinder $140.00 $ 72.00 $99.00 $ 53.00 $ 24.00 $ 12.00 2.0 DLHS 20,000 units 1.0 DLHS 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 Estimated total direct labor-hours Required: $ 1,980,000 120,000 DLHS 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 $ 783,600 495,000 602,400 Expected Activity Xtreme Pathfinder Total 40,000 80,000 200 100 1 1 120,000 300 2 99,000 NA NA NA $ 1,980,000 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.