Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pa
ID: 2539904 • Letter: S
Question
Smoky Mountain Corporation makes two types of hiking boots—the 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.
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.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.)
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places.)
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 unitsThe 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 DLHsRequired:
1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.
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):
EstimatedOverhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 588,500 42,000 65,000 107,000 Batch setups (setups) 690,000 390 300 690 Product sustaining (number of products) 500,000 1 1 2 Other 40,500 NA NA NA Total manufacturing overhead cost $ 1,819,000
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)
Xtreme Pathfinder Total Product margin $392,000 $390,000 $782,000Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.)
Xtreme Pathfinder Total Product margin $0Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places.)
Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System % % % % % % Total cost assigned to products $0 $0 $0 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % Indirect costs: % % % % % % Total cost assigned to products $0 $0 $0 Costs not assigned to products: Total cost $0Explanation / Answer
Step 1 Predetermined Manufacturing Overhead rate Estimated total manufacturing overhead Estimated total direct labor-hours 1819000 107000 $17 Per Direct Labour Hour Step 2 Direct Labour Hour Required Per unit Xtreme = 1.5 Per Hour Pathfinder = 1 Per Hour product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system Particulars Xtreme Pathfinder Direct Material Per unit 65 52 Direct Labour Per unit 13.5 9 Manufacturing Overhead Extreme = (1.5 x $17) 25.5 Pathfinder = (1 x $17) 17 Total Cost Per Unit (A) 104 78 Selling price per unit (B) 118 84 Product Margin Per Unit C = (B-A) 14 6 No. Of Units (D) 28000 65000 Product Margin (C x D) 392000 390000 Traditional costing system Particulars Xtreme Pathfinder Total Product Margin 392000 390000 782000 2 Activity Based Costing Particulars Xtreme Pathfinder Direct Material Per unit 65 52 Direct Labour Per unit 13.5 9 Prime Cost Per Unit (A) 78.5 61 No. Of Units (B) 28000 65000 Total Prime Cost C =( A X B) 2198000 3965000 Add: Manufacturing Overhead (D) : Supporting Direct labour ($588500 in 42000:65000) 231000 357500 Setup Cost ( $690000 in 390:300) 390000 300000 Product sustaining cost ($500000 In 1:1) 250000 250000 Other cost (40500 in 1:1 - No. of Sustaining Units ) 20250 20250 Total Cost Per Unit (F) 3089250 4892750 Total Sale Value (G) 3304000 5460000 Product Margin (G-F) 214750 567250 Activity Based costing system Particulars Xtreme Pathfinder Total Product Margin 214750 567250 782000 Quantitative comparison of the traditional and activity-based cost assignments Particulars Xtreme Pathfinder Total Product Margin as Per Traditional Costing 392000 390000 782000 Product Margin as Per Activity Based Costing 214750 567250 782000 Difference 177250 -177250 0 Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places.) Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Direct Material 1820000 35 % 3380000 65 % 5200000 Direct Labour 378000 39.25 % 585000 60.75 % 963000 Manufacturing Overhead 714000 39.25 % 1105000 60.75 % 1819000 Total cost assigned to products $2,912,000 $5,070,000 7982000 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct Material 1820000 35 % 3380000 65 % 5200000 Direct Labour 378000 39.25 % 585000 60.75 % 963000 Indirect costs: Supporting cost 231000 39.25 % 357500 60.75 % 588500 Set up cost 390000 56.52 % 300000 43.48 % 690000 Sustaining cost 250000 50.00 % 250000 50.00 % 500000 Total cost assigned to products $3,069,000 $4,872,500 $7,941,500 Costs not assigned to products: Other 20250 50.00 % 20250 50.00 % 40500 Total cost $3,089,250 $4,892,750 $7,982,000
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