Question
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
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 | $ | 141.00 | $ | 91.00 | ||
Direct materials per unit | $ | 64.50 | $ | 52.00 | ||
Direct labor per unit | $ | 17.00 | $ | 10.00 | ||
Direct labor-hours per unit | 1.7 | DLHs | 1.0 | DLHs | ||
Estimated annual production and sales | 23,000 | units | 74,000 | 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$2,714,400 Estimated total direct labor-hours 113,100DLHs
Required:
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 | Xtreme | Pathfinder | Total | |||
Supporting direct labor (direct labor-hours) | $ | 791,700 | 39,100 | 74,000 | 113,100 | |
Batch setups (setups) | 1,062,000 | 340 | 250 | 590 | ||
Product sustaining (number of products) | 790,000 | 1 | 1 | 2 | ||
Other | 70,700 | NA | NA | NA | ||
Total manufacturing overhead cost | $ | 2,714,400 | ||||
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.
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