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	$ 140.00		$ 99.00
Direct materials per unit	$ 72.00		$ 53.00
Direct labor per unit	$ 24.00		$ 12.00
Direct labor-hours per unit	2.0	DLHs	1.0	DLHs
Estimated annual production and sales	20,000	units	80,000	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	$ 1,980,000
Estimated total direct labor-hours	120,000	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)	$ 783,600	40,000	80,000	120,000
Batch setups (setups)	495,000	200	100	300
Product sustaining (number of products)	602,400	1	1	2
Other	99,000	NA	NA	NA
Total manufacturing overhead cost	$ 1,980,000

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.