value: 11.00 points Smoky Mountain Corporation makes two types of hiking boots_-

Question

value: 11.00 points Smoky Mountain Corporation makes two types of hiking boots_-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales Pathfinder $ 88.00 $ 54.00 $ 9.00 S 121.00 S 64.70 S 10.80 1.2 DLHs 25,000 units 1.0 DLHs 71,000 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 Estimated total direct labor-hours $2,020.000 101,000 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

Explanation / Answer

1 Product margin under traditional system is Xtreme Pathfinder Total A No. of units 25,000 71,000 96,000 B Sale price per unit 121 88 C=A*B Sale Value 3,025,000 6,248,000 9,273,000 D Direct Material 1,617,500 3,834,000 5,451,500 E Direct Labor 270,000 639,000 909,000 F=D+E Total Direct Costs 1,887,500 4,473,000 6,360,500 G Manufacturing Overhead 600,000 1,420,000 2,020,000 H =F+G Total Product Cost 2,487,500 5,893,000 8,380,500 I=C-H Product Margin 537,500 355,000 892,500 2 Product Margin under ABC system is Xtreme Pathfinder Total A No. of units 25,000 71,000 96,000 B Sale price per unit 121 88 C=A*B Sale Value 3,025,000 6,248,000 9,273,000 D Direct Material 1,617,500 3,834,000 5,451,500 E Direct Labor 270,000 639,000 909,000 F=D+E Total Direct Costs 1,887,500 4,473,000 6,360,500 G Manufacturing Overhead (ABC) 926,000 1,073,000 1,999,000 H =F+G Total Product Cost 2,813,500 5,546,000 8,359,500 I=C-H Product Margin 211,500 702,000 913,500 Activity Activity Cost Pool Cost driver Xtreme Calculation Pathfinder Calculation Supporting direct labour $606,000 Direct labour hours 180,000 30000/101000*606000 426,000 71000/101000*606000 Batch setups $693,000 Setup hours 396,000 360/630*693000 297,000 270/630*693000 Product Sustaining $700,000 No. of products 350,000 1/2*700000 350,000 1/2*700000 Total $1,999,000 $926,000 $1,073,000 3 Comparison of traditional and activity-based cost assignment is as follows: Xtreme Pathfinder Total Xtreme Pathfinder Total Amount % of total amount Amount % of total amount Amount Amount % of total amount Amount % of total amount Amount Traditional Cost system Activity Based Costing System Direct material 1,617,500 65% 3,834,000 65% 5,451,500 Direct Costs Direct labour 270,000 11% 639,000 11% 909,000    Direct material 1,617,500 60% 3,834,000 72% 5,451,500 Manufacturing overhead 600,000 24% 1,420,000 24% 2,020,000    Direct labour 270,000 10% 639,000 12% 909,000 Total cost assigned to products 2,487,500 5,893,000 8,380,500 Indirect Costs Supporting direct labour 180,000 7% 426,000 8% 606000 Batch setups 396,000 15% 297,000 6% 693000 Product Sustaining 350,000 13% 350,000 7% 700000 Total Cost assigned to products 2,813,500 104% 5,546,000 104% 8,359,500 Costs not assigned to products Other 21,000 Total Costs 8,380,500

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