Smoky Mountain Corporation makes two types of hiking bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:

XtremePathfinderSelling price per unit$120.00 $90.00 Direct materials per unit$64.10 $53.00 Direct labor per unit$13.50 $9.00 Direct labor-hours per unit 1.5DLHs 1.0DLHsEstimated annual production and sales 30,000units 70,000units

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	$	2,300,000
Estimated total direct labor-hours		115,000	DLHs

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):

Estimated Overhead CostExpected ActivityActivities and Activity MeasuresXtremePathfinderTotalSupporting direct labor (direct labor-hours)$977,500 45,00070,000115,000Batch setups (setups) 612,000 300210510Product sustaining (number of products) 700,000 112Other 10,500 NANANATotal manufacturing overhead cost$2,300,000

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.