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 $ 121.00 $ 85.00 Direct materials per unit $ 64.90 $ 51.00 Direct labor per unit $ 11.20 $ 8.00 Direct labor-hours per unit 1.4 DLHs 1.0 DLHs Estimated annual production and sales 27,000 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 $ 2,156,000 Estimated total direct labor-hours 107,800 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) $ 700,700 37,800 70,000 107,800 Batch setups (setups) 737,000 380 290 670 Product sustaining (number of products) 640,000 1 1 2 Other 78,300 NA NA NA Total manufacturing overhead cost $ 2,156,000 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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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	$ 121.00		$ 85.00
Direct materials per unit	$ 64.90		$ 51.00
Direct labor per unit	$ 11.20		$ 8.00
Direct labor-hours per unit	1.4	DLHs	1.0	DLHs
Estimated annual production and sales	27,000	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	$ 2,156,000
Estimated total direct labor-hours	107,800	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)	$ 700,700	37,800	70,000	107,800
Batch setups (setups)	737,000	380	290	670
Product sustaining (number of products)	640,000	1	1	2
Other	78,300	NA	NA	NA
Total manufacturing overhead cost	$ 2,156,000