Question
Smoky Mountain Corporation makes two types of hiking bootsXtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per
Smoky Mountain Corporation makes two types of hiking bootsXtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme | Pathfinder | ||||||
Selling price per unit | $ | 126.00 | $ | 91.00 | |||
Direct materials per unit | $ | 63.20 | $ | 51.00 | |||
Direct labor per unit | $ | 11.70 | $ | 9.00 | |||
Direct labor-hours per unit | 1.3 | DLHs | 1.0 | DLHs | |||
Estimated annual production and sales | 21,000 | units | 75,000 | units | |||
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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 | $ | 2,250,600 | ||
Estimated total direct labor-hours | 102,300 | DLHs | ||
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Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system. (Do not round your intermediate calculations.)
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 | Activity | ||||||||||||
Activities and Activity Measures | Overhead Cost | Xtreme | Pathfinder | Total | |||||||||
Supporting direct labor (direct labor-hours) | $ | 767,250 | 27,300 | 75,000 | 102,300 | ||||||||
Batch setups (setups) | 722,000 | 210 | 170 | 380 | |||||||||
Product sustaining (number of products) | 670,000 | 1 | 1 | 2 | |||||||||
Other | 91,350 | NA | NA | NA | |||||||||
Total manufacturing overhead cost | $ | 2,250,600 | |||||||||||
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Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
3. Prepare a quantitative comparison of the tradtional and activity-based cost assignments. (Do not round intermediate calcul (i.e. .1234 should be entered as 12.3)) Xtreme Pathfinder Total %of %of Amount Total Amount AmountTotal Amount Amount Traditional Cost System Total cost assigned to products S Xtreme Pathfinder Total 96 of 96 of AmountTotal Amount Amount Total Amount Amount Activity-Based Costing System Direct costs Indirect costs
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