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

XtremePathfinderSelling 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 2.0DLHs 1.0DLHsEstimated annual production and sales 20,000units 80,000units

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: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$1,980,000Estimated total direct labor-hours120,000 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 Expected ActivityActivities and Activity MeasuresOverhead CostXtremePathfinderTotalSupporting direct labor (direct labor-hours)$783,60040,00080,000120,000Batch setups (setups) 495,000200100300Product sustaining (number of products) 602,400112Other 99,000NANANA 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. Explain why the cost assignments differ.