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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		$	91.00
Direct materials per unit	$	63.70		$	56.00
Direct labor per unit	$	8.80		$	8.00
Direct labor-hours per unit		1.1	DLHs		1.0	DLHs
Estimated annual production and sales		26,000	units		73,000	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	$	2,133,600
Estimated total direct labor-hours		101,600	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)	$	629,920		28,600	73,000	101,600
Batch setups (setups)		768,000		260	220	480
Product sustaining (number of products)		710,000		1	1	2
Other		25,680		NA	NA	NA
Total manufacturing overhead cost	$	2,133,600

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.

Xtreme Pathfinder Total %of %of Amount Total Amount Amount Total Amount Amount Traditional Cost System 776 % $4,088,000 584,000 1,533,000 $ 6,205,000 % $5,744,200 Direct materials Direct labor Manufacturing overhead $ 1,656,200 228,800 600,600 $ 2,485,600 Total cost assigned to products $ 5,744,200 Xtreme Pathfinder Total %of %of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs Direct materials $ 1,656,200 %4,088,000 $ 5,744,200 Direct labor 228,80001 584,000 812,800 Indirect costs Supporting direct labor 177,320 416,000 355,000 Total cost assigned to products $ 2,833,320 452,600 352,000 355,000 $ 5,831,600 629,920 768,000 710,000 $ 8,664,920 Batch setups Product sustaining 12.50% Costs not assigned to products 25,680 $ 8,690,600 Other Total cost

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