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

Question

2 Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product nes appear below: Selling price per unit Direct $ 72.00 24.00 s 99.0e $ 53.00 12.00 Direct labor per unit per unit production and sales 2.0 DUHs 20,000 units Direct 1.e DLHs 80,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data rences concerning manufacturing overhead and direct labor-hours for the upcoming year appear below Estimated total manufacturing overhead Estimated total direct labor-hours 12e,ee0 DLHs 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) 495,800 682,400 200 100 Batch setups (setups) Other

Explanation / Answer

1 Manufacturing overheads 1980000 Total direct labor hours 120000 Manufacturing overhead rate = 16.5 2 Xtreme Pathfinder Total Sales 2800000 7920000 10720000 Cost of goods sold Direct material 1440000 4240000 5680000 Direct labor 480000 960000 1440000 Manufacturing overheads 660000 1320000 1980000 (16.5*2*20000) (16.5*1*80000) Total cost of goods sold 2580000 6520000 9100000 Product margin 220000 1400000 1620000 2 ABC Total cost Total cost driver Cost per driver Xtreme Pathfinder Total Supporting direct labor 783600 120000 6.53 261200 522400 783600 Setup cost 495000 300 1650 330000 165000 495000 Product sustaining 602400 2 301200 301200 301200 602400 Other cost 99000 1980000 ABC Xtreme Pathfinder Total Sales 2800000 7920000 10720000 Cost Direct material 1440000 4240000 5680000 Direct labor 480000 960000 1440000 Indirect cost Support direct labor 261200 522400 783600 Setup cost 330000 165000 495000 Product sustaining 301200 301200 602400 Total cost 2812400 6188600 9001000 Product margin -12400 1731400 1719000 Other cost 99000 Net operating profit 1620000 Xtreme Pathfinder Traditional costing system Amount % of amount Amount % of amount Total Direct material 1440000 25.35% 4240000 74.65% 5680000 Direct labor 480000 33.33% 960000 66.67% 1440000 Manufacturing overheads 660000 33.33% 1320000 66.67% 1980000 Total cost assigned to products 2580000 6520000 9100000 ABC Xtreme Pathfinder Direct cost Amount % of amount Amount % of amount Total Direct material 1440000 25.35% 4240000 74.65% 5680000 Direct labor 480000 33.33% 960000 66.67% 1440000 Indirect cost Support direct labor 261200 33.33% 522400 66.67% 783600 Setup cost 330000 66.67% 165000 33.33% 495000 Product sustaining 301200 50.00% 301200 50.00% 602400 Total cost assigned to products 2812400 6188600 9001000 Cost not assigned to products Other cost 99000 Total cost 9100000

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