ky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two p s appear below: lling price per unit rect materials per unit rect labor per unit rect labor-hours per unit timated annual production and sales timated total manufacturing overhead timated total direct labor-hours xtreme $ 121.00 $ 64.90 $ 11.20 tivities and Activity Measures pporting direct labor (direct labor-hours) tch setups (setups) oduct sustaining (number of products) her tal manufacturing overhead cost 1.4 DLHS 27,000 units company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hou cerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Pathfinder $ 85.00 $ 51.00 $ 8.00 1.0 DLHS 70,000 units $ 2,156,000 107,800 DLHS uired: ompute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. he company is considering replacing its traditional costing system with an activity-based costing system that would assig ufacturing overhead to the following four activity cost pools (the Other cost pool Includes organization-sustaining costs city costs): Estimated Overhead Cost $ 700,700 737,000 640,000 78,300 $ 2,156,000 Expected Activity xtreme 37,800 380 1 NA Total 70,000 107,800 290 670 1 2 NA NA Pathfinder
ky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two p s appear below: lling price per unit rect materials per unit rect labor per unit rect labor-hours per unit timated annual production and sales timated total manufacturing overhead timated total direct labor-hours xtreme $ 121.00 $ 64.90 $ 11.20 tivities and Activity Measures pporting direct labor (direct labor-hours) tch setups (setups) oduct sustaining (number of products) her tal manufacturing overhead cost 1.4 DLHS 27,000 units company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hou cerning manufacturing overhead and direct labor-hours for the upcoming year appear below: Pathfinder $ 85.00 $ 51.00 $ 8.00 1.0 DLHS 70,000 units $ 2,156,000 107,800 DLHS uired: ompute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. he company is considering replacing its traditional costing system with an activity-based costing system that would assig ufacturing overhead to the following four activity cost pools (the Other cost pool Includes organization-sustaining costs city costs): Estimated Overhead Cost $ 700,700 737,000 640,000 78,300 $ 2,156,000 Expected Activity xtreme 37,800 380 1 NA Total 70,000 107,800 290 670 1 2 NA NA Pathfinder
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Smoky Mountain Corporation manufactures two types of hiking boots—the Xtreme and the Pathfinder. Data relevant to these product lines are as follows:
### Product Data:
- **Xtreme**
- Selling price per unit: $121.00
- Direct materials per unit: $64.90
- Direct labor per unit: $11.20
- Direct labor-hours per unit: 1.4 DLHs
- Estimated annual production and sales: 27,000 units
- **Pathfinder**
- Selling price per unit: $85.00
- Direct materials per unit: $51.00
- Direct labor per unit: $8.00
- Direct labor-hours per unit: 1.0 DLHs
- Estimated annual production and sales: 70,000 units
The company uses a traditional costing system, where manufacturing overhead is applied based on direct labor-hours. The upcoming year's estimates are:
- **Estimated total manufacturing overhead**: $2,156,000
- **Estimated total direct labor-hours**: 107,800 DLHs
### Requirements:
1. **Compute Product Margins Using Traditional Costing:**
- Determine the product margins for Xtreme and Pathfinder using the traditional costing system.
2. **Implement Activity-Based Costing (ABC):**
- Transition to an activity-based costing system, allocating manufacturing overhead into four cost pools:
- Supporting direct labor (based on labor-hours)
- Batch setups (based on setups)
- Product sustaining (based on number of products)
- Other costs (organization-sustaining costs and idle capacity)
#### Activity-Based Costing Details:
- Estimated Overhead Costs and Expected Activities:
- **Supporting direct labor**: $780,700 (Xtreme: 37,800 DLHs, Pathfinder: 70,000 DLHs)
- **Batch setups**: $737,820 (Xtreme: 380 setups, Pathfinder: 290 setups, Total: 670 setups)
- **Product sustaining**: $640,000 (Xtreme: 1 product, Pathfinder: 1 product, Total: 2 products)
- **Other costs**: $29,380
- **Total Manufacturing Overhead Cost**: $2,156,000
3. **Compare Costing Methods:**
- Prepare a quantitative comparison of product margins under traditional and activity-based costing systems.
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