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.