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	$ 120.00		$ 87.00
Direct materials per unit	$ 63.60		$ 55.00
Direct labor per unit	$ 12.00		$ 10.00
Direct labor-hours per unit	1.2	DLHs	1.0	DLH
Estimated annual production and sales	25,000	units	72,000	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	$ 2,040,000
Estimated total direct labor-hours	102,000	DLHs

Required:

1. Compute the product margins for Xtreme and Pathfinder 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)	$ 622,200	30,000	72,000	102,000
Batch setups (setups)	644,000	250	210	460
Product sustaining (number of products)	700,000	1	1	2
Other	73,800	NA	NA	NA
Total manufacturing overhead cost	$ 2,040,000

Compute the product margins for Xtreme and Pathfinder under the activity-based costing system.

1. Prepare a quantitative comparison of the traditional and activity-based cost assignments.