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.)

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.)

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 $ 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

Explanation / Answer

3.

1 Product margin under traditional system is Xtreme Pathfinder Total A No. of units 28,000 65,000 93,000 B Sale price per unit 118 84 C=A*B Sale Value 3,304,000 5,460,000 8,764,000 D Direct Material 1,820,000 3,380,000 5,200,000 E Direct Labor 378,000 585,000 963,000 F=D+E Total Direct Costs 2,198,000 3,965,000 6,163,000 G Manufacturing Overhead 714,000 1,105,000 1,819,000 H =F+G Total Product Cost 2,912,000 5,070,000 7,982,000 I=C-H Product Margin 392,000 390,000 782,000

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