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:   

Xtreme Pathfinder
Selling price per unit $ 118.00 $ 84.00
Direct materials per unit $ 65.00 $ 52.00
Direct labor per unit $ 13.50 $ 9.00
Direct labor-hours per unit 1.5 DLHs 1.0 DLHs
Estimated annual production and sales 28,000 units 65,000 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 $ 1,819,000
Estimated total direct labor-hours 107,000 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.)

Explanation / Answer

Product Margin- Traditional Xactive Pathbreaker Total Sales (28000 x $118);(65000 x $84) $3,304,000.00 $5,460,000.00 $8,764,000.00 Direct materials (28000 x $65);(65000 x $52) $1,820,000.00 $3,380,000.00 $5,200,000.00 Direct labor (28000 x $13.50 );(65000 x $9) $378,000.00 $585,000.00 $963,000.00 Manufacturing overhead applied @ $17.00 per direct labor-hour $714,000.00 $1,105,000.00 $1,819,000.00 Total manufacturing cost $2,912,000.00 $5,070,000.00 $7,982,000.00 Product margin $392,000.00 $390,000.00 $782,000.00 Estimated total manufacturing overhead (a) $1,819,000.00 Estimated total direct labor-hours (b) 107000 DLH Predetermined overhead rate = a/b $17.00

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