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PROBLEM 7-17 Comparing Traditional and Activity L07-5) Smoky Mountain Corporation makes two types of concerning these two product lines appear below:

PROBLEM 7-17 Comparing Traditional and Activity L07-5) Smoky Mountain Corporation makes two types of concerning these two product lines appear below:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5) Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit ... Direct materials per unit Direct labor per unit . Direct labor-hours per unit Estimated annual production and sales $140.00 $72.00 $24.00 $99.00 $53.00 $12.00 ... 2.0 DLHS 1.0 DLHS 20,000 units 80,000 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 Estimated total direct labor-hours...... $1,980,000 120,000 DLHS Required: 1. Using Exhibit 7-13 as a guide, compute the product margins for the Xtreme and the Path- finder 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 activ- ity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Expected Activity Overhead Cost Xtreme Pathfinder Total Estimated Activities and Activity Measures $ 783,600 495,000 602,400 99,000 80,000 120,000 300 Supporting direct labor (direct labor-hours) Batch setups (setups)...... Product sustaining (number of products) Other.... 40,000 200 100 1 1 NA NA NA Total manufacturing overhead cost $1,980,000 Using Exhibit 7-1l as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity-based costing system. 3. Using Exhibit 7-14 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assign- ments differ.
Transcribed Image Text:PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5) Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit ... Direct materials per unit Direct labor per unit . Direct labor-hours per unit Estimated annual production and sales $140.00 $72.00 $24.00 $99.00 $53.00 $12.00 ... 2.0 DLHS 1.0 DLHS 20,000 units 80,000 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 Estimated total direct labor-hours...... $1,980,000 120,000 DLHS Required: 1. Using Exhibit 7-13 as a guide, compute the product margins for the Xtreme and the Path- finder 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 activ- ity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Expected Activity Overhead Cost Xtreme Pathfinder Total Estimated Activities and Activity Measures $ 783,600 495,000 602,400 99,000 80,000 120,000 300 Supporting direct labor (direct labor-hours) Batch setups (setups)...... Product sustaining (number of products) Other.... 40,000 200 100 1 1 NA NA NA Total manufacturing overhead cost $1,980,000 Using Exhibit 7-1l as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity-based costing system. 3. Using Exhibit 7-14 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assign- ments differ.
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