moky 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 $ 116.00 $ 80.00 Direct materials per unit $ 64.00 $ 52.00 Direct labor per unit $ 12.00 $ 8.00 Direct labor-hours per unit 1.5 DLHs 1.0 DLHs Estimated annual production and sales 29,000 units 76,000 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 $ 1,912,000 Estimated total direct labor-hours 119,500 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): Activities and Activity Measures Estimated Overhead Cost Expected Activity Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 693,100 43,500 76,000 119,500 Batch setups (setups) 539,000 290 200 490 Product sustaining (number of products) 640,000 1 1 2 Other 39,900 NA NA NA Total manufacturing overhead cost $ 1,912,000 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$ 116.00		$ 80.00
Direct materials per unit	$ 64.00		$ 52.00
Direct labor per unit	$ 12.00		$ 8.00
Direct labor-hours per unit	1.5	DLHs	1.0	DLHs
Estimated annual production and sales	29,000	units	76,000	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	$ 1,912,000
Estimated total direct labor-hours	119,500	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):

Activities and Activity Measures	Estimated Overhead Cost	Expected Activity
Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$ 693,100	43,500	76,000	119,500
Batch setups (setups)	539,000	290	200	490
Product sustaining (number of products)	640,000	1	1	2
Other	39,900	NA	NA	NA
Total manufacturing overhead cost	$ 1,912,000

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.

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