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

$

124.00

$

88.00

Direct materials per unit

$

63.40

$

53.00

Direct labor per unit

$

14.40

$

8.00

Direct labor-hours per unit

1.8

DLHs

1.0

DLHs

Estimated annual production and sales

23,000

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

$

2,005,200

Estimated total direct labor-hours

111,400

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

Overhead Cost

Expected Activity

Activities and Activity Measures

Xtreme

Pathfinder

Total

Supporting direct labor (direct labor-hours)

$

712,960

41,400

70,000

111,400

Batch setups (setups)

504,000

230

190

420

Product sustaining (number of products)

740,000

1

1

2

Other

48,240

NA

NA

NA

Total manufacturing overhead cost

$

2,005,200

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.