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

XtremePathfinderSelling price per unit$120.00$90.00Direct materials per unit$64.10$53.00Direct labor per unit$13.50$9.00Direct labor-hours per unit1.5DLHs1.0DLHsEstimated annual production and sales30,000units70,000units

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$2,300,000Estimated total direct labor-hours115,000DLHs

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

Overhead CostExpected ActivityActivities and Activity MeasuresXtremePathfinderTotalSupporting direct labor (direct labor-hours)$977,50045,00070,000115,000Batch setups (setups)612,000300210510Product sustaining (number of products)700,000112Other10,500NANANATotal manufacturing overhead cost$2,300,000

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.