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 | $ 123.00 | $ 86.00 | ||
Direct materials per unit | $ 63.80 | $ 50.00 | ||
Direct labor per unit | $ 10.80 | $ 9.00 | ||
Direct labor-hours per unit | 1.2 | DLHs | 1.0 | DLHs |
Estimated annual production and sales | 27,000 | 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 | $ 2,340,800 | |
---|---|---|
Estimated total direct labor-hours | 106,400 | 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) | $ 691,600 | 32,400 | 74,000 | 106,400 |
Batch setups (setups) | 900,000 | 270 | 230 | 500 |
Product sustaining (number of products) | 700,000 | 1 | 1 | 2 |
Other | 49,200 | NA | NA | NA |
Total manufacturing overhead cost | $ 2,340,800 |
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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