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Using Exhibit 7-11 as a guide, compute the product margins for the Xtreme and the Pathfinder 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 assignments differ.

Using Exhibit 7-11 as a guide, compute the product margins for the Xtreme and the Pathfinder 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 assignments differ.

FINANCIAL ACCOUNTING
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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### Problem 7-17: Comparing Traditional and Activity-Based Product Margins #### Learning Objectives (LO) - LO7-1 - LO7-3 - LO7-4 - LO7-5 --- ### Context Smoky Mountain Corporation manufactures two types of hiking boots— the Xtreme and the Pathfinder. Below are the data concerning these two product lines: | **Product** | **Selling Price per Unit** | **Direct Materials per Unit** | **Direct Labor per Unit** | **Direct Labor-Hours per Unit** | **Estimated Annual Production and Sales** | |-------------|-----------------------------|-------------------------------|---------------------------|----------------------------------|-------------------------------------------| | Xtreme | $140.00 | $72.00 | $24.00 | 2.0 DLHs | 20,000 units | | Pathfinder | $99.00 | $53.00 | $12.00 | 1.0 DLHs | 80,000 units | The company utilizes a traditional costing system where manufacturing overhead is allocated to units based on direct labor-hours. The data for the upcoming year regarding manufacturing overhead and direct labor-hours is as follows: - **Estimated total manufacturing overhead**: $1,980,000 - **Estimated total direct labor-hours**: 120,000 DLHs ### Requirements: #### 1. **Using Exhibit 7-13 as a guide, calculate the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system.** #### 2. **Activity-Based Costing (ABC) System Proposal** The company is considering switching to an activity-based costing system to assign its manufacturing overhead to these activity cost pools: | **Activities and (Activity Measures)** | **Estimated Overhead Cost** | **Expected Activity** | **Total** | |----------------------------------------|-----------------------------|-----------------------|-------------| | | | **Xtreme** | **Pathfinder** | | | Supporting direct labor (direct labor-hours) | $783,600 | 40,000 | 80,000 | 120,000 | | Batch setups (setups) | $495,000 | 100 | 200 | 300 | | Product sustaining (number of products) | $602,400 | 1 | 1 | 2
Transcribed Image Text:### Problem 7-17: Comparing Traditional and Activity-Based Product Margins #### Learning Objectives (LO) - LO7-1 - LO7-3 - LO7-4 - LO7-5 --- ### Context Smoky Mountain Corporation manufactures two types of hiking boots— the Xtreme and the Pathfinder. Below are the data concerning these two product lines: | **Product** | **Selling Price per Unit** | **Direct Materials per Unit** | **Direct Labor per Unit** | **Direct Labor-Hours per Unit** | **Estimated Annual Production and Sales** | |-------------|-----------------------------|-------------------------------|---------------------------|----------------------------------|-------------------------------------------| | Xtreme | $140.00 | $72.00 | $24.00 | 2.0 DLHs | 20,000 units | | Pathfinder | $99.00 | $53.00 | $12.00 | 1.0 DLHs | 80,000 units | The company utilizes a traditional costing system where manufacturing overhead is allocated to units based on direct labor-hours. The data for the upcoming year regarding manufacturing overhead and direct labor-hours is as follows: - **Estimated total manufacturing overhead**: $1,980,000 - **Estimated total direct labor-hours**: 120,000 DLHs ### Requirements: #### 1. **Using Exhibit 7-13 as a guide, calculate the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system.** #### 2. **Activity-Based Costing (ABC) System Proposal** The company is considering switching to an activity-based costing system to assign its manufacturing overhead to these activity cost pools: | **Activities and (Activity Measures)** | **Estimated Overhead Cost** | **Expected Activity** | **Total** | |----------------------------------------|-----------------------------|-----------------------|-------------| | | | **Xtreme** | **Pathfinder** | | | Supporting direct labor (direct labor-hours) | $783,600 | 40,000 | 80,000 | 120,000 | | Batch setups (setups) | $495,000 | 100 | 200 | 300 | | Product sustaining (number of products) | $602,400 | 1 | 1 | 2
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