Question 2 (ot 4 0 points moky Mountain Corporation makes two types of hiking bo

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Question 2 (ot 4 0 points moky Mountain Corporation makes two types of hiking boots-Xtreme and the athfinder. Data concerning these two product lines appear below: s 120.00 $ 63 30 1700 $ 87.00 $ 52.00 S 10.00 price per Direct materials per unit Direct labor per unit Direct labor hours per unit Estimated annual production and sales 1.7 DLHs 22.000 units 1.0 DLHs 76,000 units he company has a traditional costing system in which manufacturing overhead is pplied to units based on direct labor-hours. Data concerning manufacturing overhead nd direct labor-hours for the upcoming year appear below: $1,927,800 Estimated total manufacturing overhead Estimated total direct labor-hours 113,400 DLHs equired: Compute the product margins for the Xtreme and the Pathfinder products under the ompany's traditional costing system. (Do not round your intermediate calculations.) Product margin 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): Estimated Activities and Activity Measures Supporting direct labor (direct labor hours) Batch selups (setups) Product sustaining (number of products) Other Total manufacturing overhead cost Overhead Cost $703,080 37 400 220 6.000 180 113,400 400 480,000 44.720 NA NA NA 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.) Product margin 3. 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))

Explanation / Answer

Answer 1. Predetermined Overhead Rate = $1,927,800 / 113,400 Lab. Hrs Predetermined Overhead Rate = $17 per DLH Statement Showing Product Margin Under Traditional Costing System Xtreme Pathfinder Total Sales in Unit 22000 76000 SP per Unit $120 $87 Sales in $          2,640,000       6,612,000          9,252,000 Less: Cost of Goods Sold Direct material          1,392,600       3,952,000          5,344,600 Direct Labour              374,000           760,000          1,134,000 Manufacturing Overhead              635,800       1,292,000          1,927,800 Cost of goods Sold          2,402,400       6,004,000          8,406,400 Gross / Product Margin              237,600           608,000              845,600 Answer 2. Activity Cost Pool Estimated Overhead Expected use of Cost Drivers Activity-Based Overhead rate Supporting Direct Labor              703,080 113400                     6.20 per DLH Batch Setups              480,000 400            1,200.00 per setup Product Sustaining              700,000 2        350,000.00 per product others                44,720 NA NA Total Overhead          1,927,800 Alocation of Overhead Cost Under ABC Particulars Hiking Boots Total Xtreme Pathfinder Supporting Direct Labor              231,880           471,200              703,080 Batch Setups              264,000           216,000              480,000 Product Sustaining              350,000           350,000              700,000 Total              845,880       1,037,200          1,883,080 Statement Showing Product Margin Under ABC Xtreme Pathfinder Total Sales in Unit 22000 76000 SP per Unit 120 87 Sales in $          2,640,000       6,612,000          9,252,000 Less: Cost of Goods Sold Direct material          1,392,600       3,952,000          5,344,600 Direct Labour              374,000           760,000          1,134,000 Manufacturing Overhead              845,880       1,037,200          1,883,080 Cost of goods Sold          2,612,480       5,749,200          8,361,680 Product Margin                27,520           862,800              890,320 Non Traceable Other Manufacturing Exp.                44,720 Net Operating Profit / (Loss)              845,600 Answer 3. Xtreme Pathfinder Total Amt % of Total Amt. % of Total Amt. Amount Traditional Cost System Direct material          1,392,600 26.06%          3,952,000 73.94%           5,344,600 Direct Labour              374,000 32.98%              760,000 67.02%           1,134,000 Manufacturing Overhead              635,800 32.98%          1,292,000 67.02%           1,927,800 Total Cost Assigned to product          2,402,400          6,004,000           8,406,400 Xtreme Pathfinder Total Amt % of Total Amt. % of Total Amt. Amount Activity Based Costing Direct Costs Direct material          1,392,600 26.06%          3,952,000 73.94%           5,344,600 Direct Labour              374,000 32.98%              760,000 67.02%           1,134,000 Indirect Costs Supporting Direct Labor              231,880 32.98% 471200 67.02%               703,080 Batch Setups 264000 55.00% 216000 45.00%               480,000 Product Sustaining 350000 50.00% 350000 50.00%               700,000 Total Cost assigned to products          2,612,480          5,749,200           8,361,680 Costs not assigned to products Non Traceable Other Manufacturing Exp.                 44,720 Net Operating Profit / (Loss)           8,406,400

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