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	$ 128.00		$ 90.00
Direct materials per unit	$ 63.10		$ 50.00
Direct labor per unit	$ 12.00		$ 8.00
Direct labor-hours per unit	1.5	DLHs	1.0	DLHs
Estimated annual production and sales	20,000	units	70,000	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	$ 2,100,000
Estimated total direct labor-hours	100,000	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)	$ 745,000	30,000	70,000	100,000
Batch setups (setups)	612,000	200	160	360
Product sustaining (number of products)	700,000	1	1	2
Other	43,000	NA	NA	NA
Total manufacturing overhead cost	$ 2,100,000

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.