Required: 1) 2) pter 7 Saved Smoky Mountain Corporation makes two types of hikin
ID: 2399887 • Letter: R
Question
Required: 1) 2) pter 7 Saved Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below xtremePathfinder Selling price per unit Direct materials per unit Direct labor per unit Direct Estimated annual production and sales 80.0 50.00 10.00 $120.00 64.80 $13.00 1.0 DLHs 1.3 DLH 26,000 units Labor-hours per unit 72,000 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 $1,904,400 105, 800 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) Estinated Expected Activity overhead Cost Xtreme Pathfinder Total Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other $581,900 33,800 72,000 105,800 650 280 650,000 600, 000 370 NA NA NA $ 1,904, 400 Total manufacturing overhead cost Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system 3. Prepare a quantitative comparison of the traditional and activity-based cost assignmentsExplanation / Answer
(1) Traditional Costing :-
Xtreme
Pathfinder
SP pu
120
80
(-) DM pu
64.80
50
(-) DL pu
13
10
(-) MOH
(1.3 hrs * 18)
=23.4
(1 hr * 18)
=18
Margin pu
18.8
2
Units sold
26000
72000
Total Product Margin
488800
144000
Manufacturing O/H Rate using Traditional costing :-
= Estimated total mfr OH / Estimated total direct labour hrs
= 1904400/105800 = $ 18
(2) ABC Costing :-
Xtreme
Pathfinder
Sale
(26000 * 120)
=3120000
(72000 * 80)
=5760000
(-) DM cost
(26000 * 64.80)
=1684800
(72000 * 50)
=3600000
(-) DL cost
(26000 * 13)
=338000
(72000 * 10)
=720000
(-) Manufacturing O/H :-
Supporting DL
(581900/105800) * 33800
=185900
(581900/105800) * 72000
=396000
Batch setup
(650000/650) * 370
=370000
(650000/650) * 280
=280000
Product sustaining
(600000/2) * 1
=300000
(600000/2) * 1
=300000
Total Product Margin
241300
464000
(3) Quantitative Comparison :-
Xtreme
Pathfinder
Total
Amount
% of Total Amt
Amount
% of Total Amt
Amount
Traditional cost system
DM
(64.8 * 26000)
=1684800
31.88 %
(50 * 72000)
=3600000
68.12 %
5284800
DL
(13 * 26000)
=338000
31.95 %
(10 *72000)
=720000
68.05 %
1058000
MOH
(23.4 * 26000)
=608400
31.95 %
(18 * 72000)
=1296000
68.05 %
1904400
Total cost assigned to product
2631200
5616000
8247200
Xtreme
Pathfinder
Total
Amount
% of Total Amt
Amount
% of Total Amt
Amount
ABC Costing :
DM
(64.8 * 26000)
=1684800
31.88 %
(50 * 72000)
=3600000
68.12 %
5284800
DL
(13 * 26000)
=338000
31.95 %
(10 *72000)
=720000
68.05 %
1058000
MOH:-
Supporting DL
185900
31.95%
396000
68.05%
581900
Batch setup
370000
56.92%
280000
43.08%
650000
Product sustaining
300000
50%
300000
50%
600000
Total cost assigned to product
2878700
5296000
8174700
Other
72500
Total Cost
8247200
Xtreme
Pathfinder
SP pu
120
80
(-) DM pu
64.80
50
(-) DL pu
13
10
(-) MOH
(1.3 hrs * 18)
=23.4
(1 hr * 18)
=18
Margin pu
18.8
2
Units sold
26000
72000
Total Product Margin
488800
144000
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