Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pa

Question

Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below: THE ANSWER TO QUESTION 1 IS CORRECT, I NEED HELP WITH QUESTIONS 1 AND 2. THANK YOU.

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):

2. 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.

Xtreme Pathfinder Selling price per unit $ 132.00 $ 94.00 Direct materials per unit $ 64.60 $ 53.00 Direct labor per unit $ 9.60 $ 8.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 24,000 units 70,000 units

Explanation / Answer

2.

3.

2 Product Margin under ABC system is Xtreme Pathfinder Total A No. of units 24,000 70,000 94,000 B Sale price per unit 132 94 C=A*B Sale Value 3,168,000 6,580,000 9,748,000 D Direct Material 1,550,400 3,710,000 5,260,400 E Direct Labor 230,400 560,000 790,400 F=D+E Total Direct Costs 1,780,800 4,270,000 6,050,800 G Manufacturing Overhead (ABC) 1,132,200 1,265,000 2,397,200 H =F+G Total Product Cost 2,913,000 5,535,000 8,448,000 I=C-H Product Margin 255,000 1,045,000 1,300,000 Activity Activity Cost Pool Cost driver Xtreme Calculation Pathfinder Calculation Supporting direct labour $642,200 Direct labour hours 187,200 28800/98800*642200 455,000 70000/98800*642200 Batch setups $915,000 Setup hours 525,000 350/610*915000 390,000 260/610*915000 Product Sustaining $840,000 No. of products 420,000 1/2*840000 420,000 1/2*840000 Total $2,397,200 $1,132,200 $1,265,000

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