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 $ 132.00 $ 94.00 Direct materials per unit $ 64.60 $ 53.00 Direct labor per unit $ 9.60 $ 8.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 24,000 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 $ 2,470,000 Estimated total direct labor-hours 98,800 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): EstimatedOverhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 642,200 28,800 70,000 98,800 Batch setups (setups) 915,000 350 260 610 Product sustaining (number of products) 840,000 1 1 2 Other 72,800 NA NA NA Total manufacturing overhead cost $ 2,470,000 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	$	132.00		$	94.00
Direct materials per unit	$	64.60		$	53.00
Direct labor per unit	$	9.60		$	8.00
Direct labor-hours per unit		1.2	DLHs		1.0	DLHs
Estimated annual production and sales		24,000	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	$	2,470,000
Estimated total direct labor-hours		98,800	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):

	Estimated Overhead Cost	Expected Activity
Activities and Activity Measures	Xtreme	Pathfinder	Total
Supporting direct labor (direct labor-hours)	$	642,200		28,800	70,000	98,800
Batch setups (setups)		915,000		350	260	610
Product sustaining (number of products)		840,000		1	1	2
Other		72,800		NA	NA	NA
Total manufacturing overhead cost	$	2,470,000

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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