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:   

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:    

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.)

   

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):   
   .

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))

Xtreme Pathfinder Selling price per unit $ 120.00 $ 92.00 Direct materials per unit $ 63.50 $ 54.00 Direct labor per unit $ 13.50 $ 9.00 Direct labor-hours per unit 1.5 DLHs 1.0 DLHs Estimated annual production and sales 24,000 units 71,000 units

Explanation / Answer

Traditional Method per unit Xtreme per unit Pathfinder Total No. of units sold 24000 71000 95000 Sales $120 $2,880,000 $92 $6,532,000 $9,412,000 Less: Direct Material 63.50 1524000 54.00 3834000 $5,358,000 Less: Direct Labor 13.50 324000 9.00 639000 $963,000 Less: Manufacturing Overhead 28.50 684000 19.00 1349000 $2,033,000 (1.5*19) (1*19) Total 105.50 2532000 82.00 5822000 Product Margin $14.50 $348,000 $10.00 $710,000 ans 1 Predetermined overhead rate 19 2033000/107000 Xtreme Pathfinder ans 1 Product Margin $14.50 $10.00 ans 2 Activity cost pool Manu. Over Total estimated driver Activity rate Xtreme Cost allocated Pathfinder Cost allocated Supporting direct labor 663400 107000 6.20 36000 223200 71000 440200 Batch setup 572000 440 1300 240 312000 200 260000 Product sustaining cost 750000 2 375000 1 375000 1 375000 Total 910200 1075200 No. of units 24000 71000 Overhead cost per unit 37.93 15.14 Activity Based costing per unit Xtreme per unit Pathfinder Total No. of units sold 20000 70000 90000 Sales $128 $2,560,000 $90 $6,300,000 $8,860,000 Less: Direct Material 63.10 1262000 50.00 3500000 $4,762,000 Less: Direct Labor 12.00 240000 8.00 560000 $800,000 Less: Manufacturing Overhead 37.93 758600 15.14 1059800 $1,818,400 Total 113.03 2260600 73.14 5119800 Product Margin $14.97 $299,400 $16.86 $1,180,200 Xtreme Pathfinder Product Margin $14.97 $16.86 Ans 3 Xtreme Pathfinder Traditional method Amt % of Total amt Amt Total amt Total Direct Material 1262000 26.5 3500000 73.5 4762000 Direct Labor 240000 30.0 560000 70.0 800000 Manufacturing Overhead 684000 33.6 1349000 66.4 2033000 Total 2186000 5409000 7595000 ABC Direct cost Direct Material 1262000 26.5 3500000 73.5 4762000 Direct Labor 240000 30.0 560000 70.0 800000 Indirect cost Supporting direct labor 223200 33.6 440200 66.4 663400 Batch setup 312000 54.5 260000 45.5 572000 Product sustaining cost 375000 50.0 375000 50.0 750000 Total cost assigned 2412200 5135200 7547400 Cost not assigned Other 47600 Total cost 7595000 Calculation of % are For example direct material 1262000/4762000*100 26.5 % If any doubt please comment

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