Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfi
ID: 2533446 • Letter: S
Question
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme
Pathfinder
Selling price per unit
$
138.00
$
90.00
Direct materials per unit
$
64.40
$
51.00
Direct labor per unit
$
13.50
$
9.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
73,000
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
$
2,438,000
Estimated total direct labor-hours
106,000
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
$0
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
Activity
Activities and Activity Measures
Overhead Cost
Xtreme
Pathfinder
Total
Supporting direct labor (direct labor-hours)
$
646,600
33,000
73,000
106,000
Batch setups (setups)
969,000
330
240
570
Product sustaining (number of products)
780,000
1
1
2
Other
42,400
NA
NA
NA
Total manufacturing overhead cost
$
2,438,000
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
$0
Xtreme
Pathfinder
Selling price per unit
$
138.00
$
90.00
Direct materials per unit
$
64.40
$
51.00
Direct labor per unit
$
13.50
$
9.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
73,000
units
Explanation / Answer
1) overhead rate estimated MOH/estimated DLH's 2438000/106000 23 product margin Xtreme pathfinder total Selling price per unit 138 90 less:Expense Direct materials per unit 64.4 51 Direct labor per unit 13.5 9 overhead pu (oh rate*DLH's pu) 34.5 23 total unit cost 112.4 83 product margin 25.6 7 32.6 answer 2) overhead rate oh rate amount driver Activity Supporting direct labor 646,600 106,000 6.1 batch setups 969,000 570 1700 product sustaining 780,000 2 390000 allocation of overhead and per unit cost Xtremet Pathfinder Rate driver OH Rate Driver OH Activity Supporting direct labor 6.1 33,000 201300 6.1 73,000 445300 batch setups 1700 330 561000 1700 240 408000 product sustaining 390000 1 390000 390000 1 390000 total overhead 1152300 1243300 total production 22,000 73,000 overhead per unit 52.38 17.03 product margin Xtreme pathfinder total Selling price per unit 138 90 less:Expense Direct materials per unit 64.4 51 Direct labor per unit 13.5 9 overhead pu (oh rate*DLH's pu) 52.38 17.03 total unit cost 130.28 77.03 product margin 7.72 12.97 20.69 answer
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