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	$ 125.00		$ 91.00
Direct materials per unit	$ 64.20		$ 55.00
Direct labor per unit	$ 16.00		$ 10.00
Direct labor-hours per unit	1.6	DLHs	1.0	DLHs
Estimated annual production and sales	25,000	units	71,000	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	$ 2,331,000
Estimated total direct labor-hours	111,000	DLHs

Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the companys 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):

Activities and Activity Measures	Estimated Overhead Cost	Expected Activity
		Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$ 888,000	40,000	71,000	111,000
Batch setups (setups)	583,000	310	220	530
Product sustaining (number of products)	780,000	1	1	2
Other	80,000	NA	NA	NA
Total manufacturing overhead cost	$ 2,331,000

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.