Hi, Can you please show your work, step by step instruction on how to get the an
ID: 2570138 • Letter: H
Question
Hi,
Can you please show your work, step by step instruction on how to get the answers.. I can't seem to figure it out. Thank you
Smcky Mountain Coporaticn makes two types of hiking boots-Xireme and the Pathfinder Data conceming these two product lines appear below Xtrema Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales S 120.00 5 64 BD S 13.00 5 80.00 5 50 00 S 10.00 13 DLHs 26,000 units 10 DHs 72,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labcr-hours. Data conceming manufacturing overhead and direct labor-hours for the upcoming year appear below Estmated total manufacturing overhead Estimated total diract labor-hours S1,904.400 105,800 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.) Product margin 2. The company is considering replacing its tradcional costing system with an activity-based costing system that would assign its manutacturing overhead to the tollowing four actvity cost pools (the Other cost paol includes organization-sustaining costs and idle capacity costs) Estmated Activities and Activity Measuras Supporting direct labor (direct labor-hours Batch setups (satups) Product sustaining (number of products) Other Total manufacturing overhaad ct Overhead Cost S 581 500 33,800 370 105,800 72.000 280 550 000 600,000 NA NA NA Compute the product margins tor the Xtreme and the Pathtinder 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.) Pathfinder otel Product marginExplanation / Answer
Solution:
1) Product Margin under traditional costing system
Xtreme
Pathfinder
Total
Selling Price Per Unit (A)
$120.00
$80.00
Manufacturing Cost per unit:
Direct materials per unit
$64.80
$50.00
Direct labor per unit
$13.00
$10.00
Applied Manufacturing Overhead Per Unit
(Refer note 1)
$23.40
(1.3 DLHs x $18)
$18.00
Manufacturing Cost per unit (B)
$101.20
$78.00
Product Margin Per Unit (C = A-B)
$18.80
$2.00
Estimated Annual Production and Sales (D)
26,000 Units
72,000 Units
Total Production Margin (CxD)
$488,800
$144,000
$632,800
Note 1 –
Under traditional costing, the overheads are calculated on predetermined basis by estimating total manufacturing overhead for the year and estimating allocation base (in this question allocation base is Direct labor hours).
Allocation Overhead Rate = Total Estimated Manufacturing Overheads / Total Estimated Direct labor hours
= $1,904,400 / 105,800 DLHs
= $18 per direct labor hour
Manufacturing Overhead Applied to Xtreme Product = Direct labor hour needed per unit x Allocation Rate
= 1.3 DLHs x $18
= $23.40 per unit
Manufacturing Overhead Applied to Pathfinder Product = Direct labor hour needed per unit x Allocation Rate
= 1 DLH x $18
= $18 per unit
Traditional / Absorption Costing System
- Product Cost refers to the costs used to fabricate/make/produce a product.
- Under Traditional/Absorption Costing, product cost includes both fixed and variable manufacturing expenses used to fabricate the product or service.
- It includes cost of direct material used, cost of direct labor, consumable supplies used and manufacturing/factory overheads (both variable as well as fixed factory overhead).
- Ending Inventory is valued on Production Cost.
- Product Cost does not include Selling, General and Administrative Expenses.
2) Product Margin using Activity Based Costing System
Xtreme
Pathfinder
Total
Selling Price Per Unit (A)
$120.00
$80.00
Manufacturing Cost per unit:
Direct materials per unit
$64.80
$50.00
Direct labor per unit
$13.00
$10.00
Applied Manufacturing Overhead Per Unit
(Refer Note 2)
$32.92
$13.56
Manufacturing Cost per unit (B)
$110.72
$73.56
Product Margin Per Unit (C = A-B)
$9.28
$6.44
Estimated Annual Production and Sales (D)
26,000 Units
72,000 Units
Total Production Margin (C x D)
$241,280
$463,680
$704,960
Note 2 --
Under this system, the overheads are allocated based on the activity on which they incurred or related and then find number of activity to be used to find out the activity rate for each activity.
Calculation of cost per activity
Activities
Total Indirect Cost
Total Activities
Cost per Activity
(a)
(b)
(a/b)
Supporting direct labor
$581,900
105800
Direct labor hours
$5.50
per DLH
Batch Setups
$650,000
650
Number of Setups
$1,000
per setup
Product Sustaining
$600,000
2
Number of Products
$300,000
per product
Other
$72,500
0
NA
NA
$1,904,400
Allocation of Overhead Costs based on the activity consumed by the each product
Xtreme
Pathfinder
Activities
Rate per Cost driver Unit
Activity Consumed
Allocated Overhead Cost
Activity Consumed
Allocated Overhead Cost
(a)
(b)
(a*b)
(s)
(a*s)
Supporting direct labor
$5.50
33800
$185,900
72000
$396,000
Batch Setups
$1,000
370
$370,000
280
$280,000
Product Sustaining
$300,000
1
$300,000
1
$300,000
Assigned Overhead Cost
$855,900
$976,000
Divide by Number of Production Units
26,000 Units
72,000 Units
Assigned Overhead Cost per unit
$32.92
$13.56
3) Quantitative Comparison between traditional and activity based cost assignments
3) Quantitative Comparison between traditional and activity based cost assignments
Xtreme
Pathfinder
Total
% of
% of
Amount
Total Amount
Amount
Total Amount
Amount
Traditional Cost system
Direct materials
$1,684,800
31.88%
$3,600,000
68.12%
$5,284,800
Direct labors
$338,000
31.95%
$720,000
68.05%
$1,058,000
Manufacturing Overheads
$608,400
31.95%
$1,296,000
68.05%
$1,904,400
Total costs assigned to products
$2,631,200
$5,616,000
$8,247,200
Xtreme
Pathfinder
Total
% of
% of
Amount
Total Amount
Amount
Total Amount
Amount
Activity Based Costing System
Direct Costs:
Direct materials
$1,684,800
31.88%
$3,600,000
68.12%
$5,284,800
Direct labors
$338,000
31.95%
$720,000
68.05%
$1,058,000
Indirect Costs:
Supporting direct labor
$185,900
31.95%
$396,000
68.05%
$581,900
Batch Setups
$370,000
56.92%
$280,000
43.08%
$650,000
Product Sustaining
$300,000
50.00%
$300,000
50.00%
$600,000
Total cost assigned to product
$2,878,700
$5,296,000
$8,174,700
Costs not assigned to products:
Other
$72,500
Total Cost
$8,247,200
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Xtreme
Pathfinder
Total
Selling Price Per Unit (A)
$120.00
$80.00
Manufacturing Cost per unit:
Direct materials per unit
$64.80
$50.00
Direct labor per unit
$13.00
$10.00
Applied Manufacturing Overhead Per Unit
(Refer note 1)
$23.40
(1.3 DLHs x $18)
$18.00
Manufacturing Cost per unit (B)
$101.20
$78.00
Product Margin Per Unit (C = A-B)
$18.80
$2.00
Estimated Annual Production and Sales (D)
26,000 Units
72,000 Units
Total Production Margin (CxD)
$488,800
$144,000
$632,800
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