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 $ 120.00 $ 87.00 Direct materials per unit $ 63.60 $ 55.00 Direct labor per unit $ 12.00 $ 10.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 25,000 units 72,000 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 $ 2,040,000 Estimated total direct labor-hours 102,000 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):

Estimated Overhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 622,200 30,000 72,000 102,000 Batch setups (setups) 644,000 250 210 460 Product sustaining (number of products) 700,000 1 1 2 Other 73,800 NA NA NA Total manufacturing overhead cost $ 2,040,000

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.