Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfi

Question

Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales S 123.00 S 63.80 S 10.80 Pathfinder S 86.00 S 50.00 $ 9.00 1.2 DLHs 27,000 units 1.0 DLHs 74,000 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 Estimated total direct labor-hours $2,340,800 106,400 DLHs Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Do not round your intermediate calculations.) Xtreme Pathfinder Total Product margin S 594,000S 370,000964,000 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 Pathfinder 74,000 230 Xtreme Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Overhead Cost S 691,600 Total 106,400 32.400 270 900,000 700,000 49,200 2,340,800 500 NA NA Total manufacturing overhead cost 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.) Xtreme Pathfinder Total Product margin 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)) Pathfinder Total %of %of Amount Total Amount Amount Total Amount Traditional Cost System Direct materials Direct labor overhead Total cost assigned to products 0 0

Explanation / Answer

Answer 1. Predetermined Overhead Rate = $2,340,800 / 106,400 Lab. Hrs Predetermined Overhead Rate = $22 per DLH Statement Showing Product Margin Under Traditional Costing System Xtreme Pathfinder Total Sales in Unit                27,000                74,000 SP per Unit                123.00                  86.00 Sales in $    3,321,000.00    6,364,000.00    9,685,000.00 Less: Cost of Goods Sold Direct material    1,722,600.00    3,700,000.00    5,422,600.00 Direct Labour        291,600.00        666,000.00        957,600.00 Manufacturing Overhead        712,800.00    1,628,000.00    2,340,800.00 Cost of goods Sold    2,727,000.00    5,994,000.00    8,721,000.00 Gross / Product Margin        594,000.00        370,000.00        964,000.00 Answer 2. Activity Cost Pool Estimated Overhead Expected use of Cost Drivers Activity-Based Overhead rate Supporting Direct Labor        691,600.00              106,400                     6.50 per DLH Batch Setups        900,000.00                      500             1,800.00 per setup Product Sustaining        700,000.00                           2        350,000.00 per product others          49,200.00 NA NA Total Overhead    2,340,800.00 Alocation of Overhead Cost Under ABC Particulars Hiking Boots Total Xtreme Pathfinder Supporting Direct Labor        210,600.00        481,000.00        691,600.00 Batch Setups        486,000.00        414,000.00        900,000.00 Product Sustaining        350,000.00        350,000.00        700,000.00 Total    1,046,600.00    1,245,000.00    2,291,600.00 Statement Showing Product Margin Under ABC Xtreme Pathfinder Total Sales in Unit 27000 74000 SP per Unit                123.00                  86.00 Sales in $    3,321,000.00    6,364,000.00    9,685,000.00 Less: Cost of Goods Sold Direct material    1,722,600.00    3,700,000.00    5,422,600.00 Direct Labour        291,600.00        666,000.00        957,600.00 Manufacturing Overhead    1,046,600.00    1,245,000.00    2,291,600.00 Cost of goods Sold    3,060,800.00    5,611,000.00    8,671,800.00 Product Margin        260,200.00        753,000.00    1,013,200.00 Non Traceable Other Manufacturing Exp.          49,200.00 Net Operating Profit / (Loss)        964,000.00 Answer 3. Xtreme Pathfinder Total Amt % of Total Amt. % of Total Amt. Amount Traditional Cost System Direct material    1,722,600.00 31.77%    3,700,000.00 68.23%     5,422,600.00 Direct Labour        291,600.00 30.45%        666,000.00 69.55%         957,600.00 Manufacturing Overhead        712,800.00 30.45%    1,628,000.00 69.55%     2,340,800.00 Total Cost Assigned to product    2,727,000.00    5,994,000.00     8,721,000.00 Xtreme Pathfinder Total Amt % of Total Amt. % of Total Amt. Amount Activity Based Costing Direct Costs Direct material    1,722,600.00 31.77%    3,700,000.00 68.23%     5,422,600.00 Direct Labour        291,600.00 30.45%        666,000.00 69.55%         957,600.00 Indirect Costs Supporting Direct Labor        210,600.00 30.45%        481,000.00 69.55%         691,600.00 Batch Setups        486,000.00 54.00%        414,000.00 46.00%         900,000.00 Product Sustaining        350,000.00 50.00%        350,000.00 50.00%         700,000.00 Total Cost assigned to products    3,060,800.00    5,611,000.00     8,671,800.00 Costs not assigned to products Non Traceable Other Manufacturing Exp.           49,200.00 Total Cost     8,721,000.00

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