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 $ 115.00 $ 85.00

Direct materials per unit $ 63.90 $ 51.00

Direct labor per unit $ 12.00 $ 10.00

Direct labor-hours per unit 1.2 DLHs 1.0 DLHs

Estimated annual production and sales 28,000 units 75,000 unit

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 $ 2,063,400

Estimated total direct labor-hours 108,600 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

Xtreme Pathfinder Total

Supporting direct labor (direct labor-hours) $ 673,320 33,600 75,000 108,600

Batch setups (setups) 520,000 280 240 520

Product sustaining (number of products) 790,000 1 1 2

Other 80,080 NA NA NA

Total manufacturing overhead cost $ 2,063,400

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.