Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pa
ID: 2821088 • 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: Xtreme Pathfinder Selling price per unit $ 124.00 $ 88.00 Direct materials per unit $ 63.40 $ 53.00 Direct labor per unit $ 14.40 $ 8.00 Direct labor-hours per unit 1.8 DLHs 1.0 DLHs Estimated annual production and sales 23,000 units 70,000 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 $ 2,005,200 Estimated total direct labor-hours 111,400 DLHs 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): Estimated Overhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 712,960 41,400 70,000 111,400 Batch setups (setups) 504,000 230 190 420 Product sustaining (number of products) 740,000 1 1 2 Other 48,240 NA NA NA Total manufacturing overhead cost $ 2,005,200 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.
Explanation / Answer
Traditional costing method
overhead allocation
Particulars
Xtreme
Pathfinder
Total
Estimated annual Production (In units)
23000
70000
Direct Labour Hours Per unit
1.8
1
Total Direct Labour Hours
41400
70000
111400
Overhead Cost Allocation basis direct labour hours (Overhead / Total hours * Labor hours of model)
$745,200.00
$1,260,000.00
$2,005,200.00
Manufacturing overhead cost per unit (Allocated Overhead / Nos of units)
$32.40
$18.00
Computation of Product Margin
Particulars
Xtreme
Pathfinder
Total
Selling price per unit
$124.00
$88.00
Direct material per unit
$63.40
$53.00
Direct labor per unit
$14.40
$8.00
Manufacturing overhead cost per unit
$32.40
$18.00
Product Margin per unit
$13.80
$9.00
Nos of units sold
23000
70000
Total Margin(Product margin per unit*No.of unit sold)
$317,400.00
$630,000.00
$947,400.00
Activity based costing
Determination of activity rate for each activity & allocation of overhead
Activity
Estimated Overhead Cost
Activity Base
Usage of Activity Base
Activity Rate
Xtreme
Pathfinder
Usage
Allocated Costs
Usage
Allocated Costs
Supporting direct labor cost
$712,960.00
Direct Labor hours
111400
$6.40
41400
$264,960.00
70000
$448,000.00
Batch Setups
$504,000.00
Setups
420
$1,200.00
230
$276,000.00
190
$228,000.00
Product sustaining
$740,000.00
Number of products
2
$370,000.00
1
$370,000.00
1
$370,000.00
Other
$48,240.00
No allocation
Total
$2,005,200.00
$910,960.00
$1,046,000.00
No. of units
23000
70000
Allocated overhead per unit
$39.6070
$14.9429
Computation of Product Margin
Particulars
Xtreme
Pathfinder
Total
Selling price per unit
$124.00
$88.00
Direct material per unit
$63.40
$53.00
Direct labor per unit
$14.40
$8.00
Allocated Manufacturing overhead cost per unit
$39.6070
$14.9429
Product Margin per unit
$6.5930
$12.0571
No. of units sold
23000
70000
Total Margin (Product margin per unit * No. of unit sold)
$151,640.00
$844,000.00
$995,640.00
Quantity comparison of traditional cost assignment
Particulars
Xtreme
Pathfinder
Total
Amount
% of total Amount
Amount
% of total Amount
Amount
% of total Amount
Direct Material Cost
$1,458,200.00
57.53%
$3,710,000.00
67.09%
$5,168,200.00
64.09%
Direct Labor Cost
$331,200.00
13.07%
$560,000.00
10.13%
$891,200.00
11.05%
Manufacturing Overhead cost
$745,200.00
29.40%
$1,260,000.00
22.78%
$2,005,200.00
24.86%
Total
$2,534,600.00
$5,530,000.00
$8,064,600.00
Quantity comparison of Activity Based cost assignment
Particulars
Xtreme
Pathfinder
Total
Amount
% of total Amount
Amount
% of total Amount
Amount
% of total Amount
Direct Cost:
Material Cost
$1,458,200.00
54.00%
$3,710,000.00
69.79%
$5,168,200.00
64.47%
Labor Cost
$331,200.00
12.27%
$560,000.00
10.53%
$891,200.00
11.12%
Indirect Cost:
Supporting direct labor cost
$264,960.00
9.81%
$448,000.00
8.43%
$712,960.00
8.89%
Batch Setups
$276,000.00
10.22%
$228,000.00
4.29%
$504,000.00
6.29%
Product sustaining
$370,000.00
13.70%
$370,000.00
6.96%
$740,000.00
9.23%
Total Cost Assigned to Products
$2,700,360.00
$5,316,000.00
$8,016,360.00
Cost not assigned to products
$48,240.00
Total Cost
$8,064,600.00
overhead allocation
Particulars
Xtreme
Pathfinder
Total
Estimated annual Production (In units)
23000
70000
Direct Labour Hours Per unit
1.8
1
Total Direct Labour Hours
41400
70000
111400
Overhead Cost Allocation basis direct labour hours (Overhead / Total hours * Labor hours of model)
$745,200.00
$1,260,000.00
$2,005,200.00
Manufacturing overhead cost per unit (Allocated Overhead / Nos of units)
$32.40
$18.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.