PROBLEM 7-18 Comparing Traditional and Activity-Based Product Margins (LOI, LO3, L04, L05] Smoky Mountain Corporation makes two types of hiking boots---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..... $140.00 $72.00 $24.00 2.0 DLHs 20,000 units $99.00 $53.00 $12.00 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.. $1,980,000 120,000 DLHs Required: 1. Using Exhibit 7-12 as a guide, compute the product margins for the Xtreme and the Path- finder 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): Overhead Activity Totais Activities and Activity Measure Supporting direct labor (direct labor-hours). Batch setups (setups) Product sustaining (number of products). Other Total manutacturing overhead cost. $ 783,600 495,000 602,400 99,000 $1,980,000 40.000 200 1 NA 80,000 100 1 NA 120,000 300 2 NA .. Using Exhibit 7-10 as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity based costing system. 3. Using Exhibit 7-13 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