Smoky Mountain Corporation makes two types of hiking boots—theXtreme and the Pathfinder. Data concerning these two product linesappear below:
| Xtreme | Pathfinder |
| Selling price perunit | $ | 128.00 | | $ | 90.00 | |
| Direct materials per unit | $ | 63.10 | | $ | 50.00 | |
| Direct labor per unit | $ | 12.00 | | $ | 8.00 | |
| Direct labor-hours per unit | | 1.5 | DLHs | | 1.0 | DLHs |
| Estimated annual production andsales | | 20,000 | units | | 70,000 | units |
|
The company has a traditional costing system in whichmanufacturing overhead is applied to units based on directlabor-hours. Data concerning manufacturing overhead and directlabor-hours for the upcoming year appear below:
| | | |
| Estimated total manufacturingoverhead | $ | 2,100,000 | |
| Estimated total directlabor-hours | | 100,000 | DLHs |
|
Required:
1. Compute the product margins for the Xtreme and the Pathfinderproducts under the company’s traditional costing system.
2. The company is considering replacing its traditional costingsystem with an activity-based costing system that would assign itsmanufacturing overhead to the following four activity cost pools(the Other cost pool includes organization-sustaining costs andidle capacity costs):
| Estimated
Overhead Cost | Expected Activity |
| Activities and ActivityMeasures | Xtreme | Pathfinder | Total |
| Supporting directlabor (direct labor-hours) | $ | 745,000 | | 30,000 | 70,000 | 100,000 |
| Batch setups (setups) | | 612,000 | | 200 | 160 | 360 |
| Product sustaining (number ofproducts) | | 700,000 | | 1 | 1 | 2 |
| Other | | 43,000 | | NA | NA | NA |
| Total manufacturing overheadcost | $ | 2,100,000 | | | | |
|
Compute the product margins for the Xtreme and the Pathfinderproducts under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional andactivity-based cost assignments.
