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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 bootsthe Xtreme and the Pathfinder. Data concerning these two product lines appear below:

	Xtreme			Pathfinder
Selling price per unit	$	121.00		$	88.00
Direct materials per unit	$	64.70		$	54.00
Direct labor per unit	$	10.80		$	9.00
Direct labor-hours per unit		1.2	DLHs		1.0	DLHs
Estimated annual production and sales		25,000	units		71,000	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	$	2,020,000
Estimated total direct labor-hours		101,000	DLHs

Required:

1. Compute the product margins for the Xtreme and the Pathfinder products under the companys 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)	$	606,000		30,000	71,000	101,000
Batch setups (setups)		693,000		360	270	630
Product sustaining (number of products)		700,000		1	1	2
Other		21,000		NA	NA	NA
Total manufacturing overhead cost	$	2,020,000

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.

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places.)

Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Xtreme Pathfinder Total Product margin $0 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.) Xtreme Pathfinder Total Product margin $0

Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System % % % % % % Total cost assigned to products $0 $0 $0 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: % % % % Indirect costs: % % % % % % Total cost assigned to products $0 $0 $0 Costs not assigned to products: Total cost $0

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