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 $ 115.00 $ 84.00 Direct materials per unit $ 65.50 $ 54.00 Direct labor per unit $ 13.60 $ 8.00 Direct labor-hours per unit 1.7 DLHs 1.0 DLHs Estimated annual production and sales 33,000 units 61,000 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 $ 1,756,500 Estimated total direct labor-hours 117,100 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) $ 526,950 56,100 61,000 117,100 Batch setups (setups) 790,000 440 350 790 Product sustaining (number of products) 400,000 1 1 2 Other 39,550 NA NA NA Total manufacturing overhead cost $ 1,756,500 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	$	115.00		$	84.00
Direct materials per unit	$	65.50		$	54.00
Direct labor per unit	$	13.60		$	8.00
Direct labor-hours per unit		1.7	DLHs		1.0	DLHs
Estimated annual production and sales		33,000	units		61,000	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	$	1,756,500
Estimated total direct labor-hours		117,100	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)	$	526,950		56,100	61,000	117,100
Batch setups (setups)		790,000		440	350	790
Product sustaining (number of products)		400,000		1	1	2
Other		39,550		NA	NA	NA
Total manufacturing overhead cost	$	1,756,500

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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