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Smoky Mountain Corporation makes two types of hiking bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price
Smoky Mountain Corporation makes two types of hiking bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme | Pathfinder | |||
---|---|---|---|---|
Selling price per unit | $ 132.00 | $ 94.00 | ||
Direct materials per unit | $ 64.60 | $ 53.00 | ||
Direct labor per unit | $ 9.60 | $ 8.00 | ||
Direct labor-hours per unit | 1.2 | DLHs | 1.0 | DLHs |
Estimated annual production and sales | 24,000 | 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 | $ 2,470,000 | |
---|---|---|
Estimated total direct labor-hours | 98,800 | DLHs |
Required:
- Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system.
- 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) Estimated Overhead Cost Expected Activity Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 642,200 28,800 70,000 98,800 Batch setups (setups) 915,000 350 260 610 Product sustaining (number of products) 840,000 1 1 2 Other 72,800 NA NA NA Total manufacturing overhead cost $ 2,470,000 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
- Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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