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Smoky Mountain Corporation makes two types of hiking bootsXtreme and Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit
Smoky Mountain Corporation makes two types of hiking bootsXtreme and 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 DLH Estimated annual production and sales 20,000 units 80,000 units The company has a traditional costing system that applies manufacturing overhead 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: Compute the product margins for Xtreme and Pathfinder under the companys traditional costing system. 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 Xtreme and Pathfinder under the activity-based costing system. Prepare a quantitative comparison of the traditional and activity-based cost assignments
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