Question

based cost assignments Explain why the trial 0 3 .106-4 he Path PROBLEM 6-17 Comparing fra 17 Comparing Traditional and Activity-Based Product Margins (LOG-1, LO y Mountain Corporation makes two types of hiking boots Xtreme and the concerning these two product lines appear below Xtreme Selling price per unit ....... Direct materials per unit..... Direct labor per unit ...... Direct labor-hours per unit.... Estimated annual production and sales .. $140.00 $72.00 $24.00 2.0 DLHS 20,000 units Partidade $99.00 $53.00 $12.00 100 80,000 erhead is applied direct labore The company has a traditional costing system in which manufacturing overhead units based on direct labor-hours. Data concerning manufacturing overhead and direct for the upcoming year appear below: ...... $1,980,000 Estimated total manufacturing overhead .... Estimated total direct labor-hours ... 120,000 DLHS Required: 1. Using Exhibit 6-13 as a guide, compute the product margins for the Xtreme and the finder products under the company's traditional costing system. The company is considering replacing its traditional costing system with an act costing system that would assign its manufacturing overhead to the following four a cost pools (the Other cost pool includes organization-sustaining costs and idle capacity Estimated Expected Activity Activities (and Activity Measures) Overhead Cost Xtreme Pathfinder Supporting direct labor (direct labor-hours).... $ 783,600 40.000 80.000 Batch setups (setups) ................... 495,000 200 100 Product sustaining (number of products)...... 602,400 1 Other .................................... 99,000 NA NA Total manufacturing overhead cost........... $1,980,000

Answer 1

Answers 1 Product Margin under Traditional Costing Xtreme | Pathfinder Prodcut Margin 220000 1400000 2 Product Margin under Activity Based costing Xtreme | Pathfinder Prodcut Margin - 12400 1731400 Total 1620000 Total 1719000

3. Quantitative Comparision of the Traditional and Activity Based Cost Assignments Quantitative comparsion of the Traditional Cost Xtreme Pathfinder Total Traditional Costing System Amount % Amount % Direct Material 1440000 25.4% 4240000 74.6% 5680000 DirectLabor 480000 33.3% 960000 66.7% 1440000 Manufacturing Overheads 6600001 33.3% 1320000 66.7% 1980000 Cost Assigned to Prodcut 2580000 6520000 9100000 Quantitative Comparison of Acticity Based Cost Assignments Xtreme Pathfinder Total Activty Based Costing System Amount % Amount % Direct Cost Direct Material 1440000 25.4% 4240000 74.6% 5680000 Direct Labor 480000 33.3% 960000 66.7% 1440000 Indirect Cost Supporing direct Labor 261200 33.3% 522400 66.7% 783600 Batch setup 330000 66.7% 165000 33.3% 495000 Prodcut Sustainind 301200 50.0% 301200 50.0% 602400 Total Cost Assigned to Products 2812400 6188600 9001000 Cost Not asigned to the Products Other 99000 Total Cost 9100000

Determination of Activity Rate Activty Pool Estimated OH Supporing direct Labor 783600 Batch setup 495000 Prodcut Sustainind 602400 Base Activity Rate 120000 6.53 1650 2 301200 300 Activity Based Costing System Xtreme Pathfinder Total sales 2800000 7920000 10720000 Direct Material 1440000 4240000 5680000 Direct Labor 480000 960000 1440000 Supporing direct Labor 261200 522400 783600 Batch setup 3300001 165000 4950001 Prodcut Sustainind 301200 301200 602400 Total Cost 2812400 6188600 9001000 Product Margin - 12400 1731400 1719000

Working Notes Xtreme Selling Price 140.00 Direct Material 72.00 Direct Labor 24.00 Dirct Labou hour Per unit Estimated Production 20000 Pathfinder 99.00 53.00 12.00 80000 Estimated MOH L Estimated Labor hours Predetermined Overhead Rate Total Direct Labor Hours =(Units Direct Labor Hour) 1980000 120000 16.50 1980000/120000 Xtreme Pathfinder Total 40000 80000 120000 Traditional Costing System Xtreme Pathfinder Total sales 2800000 7920000 10720000 Direct Material 1440000 4240000 5680000 Direct Labor 480000 960000 1440000 Manufacturing Overheads 660000 1320000) 1980000 Total Manufacturing Cost 2580000 6520000 9100000 Product Margin 220000 1400000 1620000