Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pa

Question

Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit $ 121.00 $ 88.00 Direct materials per unit $ 64.70 $ 54.00 Direct labor per unit $ 10.80 $ 9.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 25,000 units 71,000 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 $ 2,020,000 Estimated total direct labor-hours 101,000 DLHs Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s 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):

Explanation / Answer

1) overhead rate estimated MOH/estimated DLH's 2,020,000/101,000 20 product margin Xtreme pathfinder total Selling price per unit 121 88 less:Expense Direct materials per unit 64.7 54 Direct labor per unit 10.8 9 overhead pu (oh rate*DLH's pu) 24 20 total unit cost 99.5 83 product margin 21.5 5 26.5 Xtreme pathfinder total product margin 537500 355000 892500 answer

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