Question

Total cost assigned to products 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 Costs not assigned to products: Total cost < Required 2 Required 3 >

Answer 1

For Smoky Mountain Corporation

(1) Product Margin ( from (2) and (3) below)

Particulars	Xtreme	Pathfinder	Total
Traditional Cost System (in %)	7.6	11.8	10.5
Activity based Cost System (in %)	4.3	13.3	10.5

(2) Traditional Cost System

Particulars	Particulars	%	Xtreme	Particulars	%	Pathfinder	Total
1.Total sales	23000 u@$124p.u	31.6	$2852000	70000u@$88p.u	68.4	$6160000	$9012000
2.Variable Cost
Direct Materials	23000u@$63.4p.u	28.2	$1458200	70000u@$53p.u	71.8	$3710000	$5168200
Direct Labor*	23000u@$14.4p.u	37.2	$331200	70000u@$8p.u	62.8	$560000	$891200
Variable Overheads**	23000u*1.8hrs*$10.92	37.2	$452324	70000u*1hr*$10.92	62.8	$764636	$1216960
Total (2)			$2241724			$5034636	$7276360
3.Contribution(1-2)		21.4	$610276		18.3	$1125364	$1735640
4.Fixed Costs(from WN-2)***			$394120			$394120	$788240
5.Profit		7.6	$216156		11.8	$731244	$947400

*Total labor hours = Hours for Xtreme+ Hours for Pathfinder=1.8hrs*23000u+1hr*70000u=111400 hrs

**Total Manufacturing overheads =$2005200

Total Variable manufacturing overheads =$2005200-$788240=$1216960

Variable manufacturing overheads per hour = $1216960/111400 hrs=$10.92p.hr

Also rounding off difference is distributed equally

***Other Costs i.e., Fixed Costs =$48240+$740000=$788240

(3) Activity based Cost System

Particulars	Particulars	%	Xtreme	Particulars	%	Pathfinder	Total
1.Total sales	23000 u@$124p.u	31.6	$2852000	70000u@$88p.u	68.4	$6160000	$9012000
2.Variable Cost
Direct Materials	23000u@$63.4p.u	28.2	$1458200	70000u@$53p.u	71.8	$3710000	$5168200
Direct Labor*	23000u@$14.4p.u	37.2	$331200	70000u@$8p.u	62.8	$560000	$891200
Variable Overheads	From WN-1(3)	44.4	$540960	From WN-1(3)	55.6	$676000	$1216960
Total (2)			$2330360			$4946000	$7276360
3.Contribution(1-2)		18.3	$521640		19.7	$1214000	$1735640
4.Fixed Costs			$394120			$394120	$788240
5.Profit		4.3	$127520		13.3	$819880	$947400

WN-1

Particulars	Amount ($)	Xtreme	Pathfinder
1.Supporting Direct Labor[$712960/111400hrs]	6.4 p.hr	$6.4*41400hrs=$264960	$6.4*70000hrs=$448000
2.Batch Setups [$504000/420 set ups]	1200 p. set up	$1200*230=$276000	$1200*190=$228000
3.Variable Manufacturing Overheads[1+2]		$540960	$676000
4.Sustaining Costs i.e., Fixed Costs		$370000	$370000
5.Other Costs*(WN-2)		$24120	$24120
6.FixedCosts [4+5]		$394120	$394120

WN-2

1.Sustaining costs are in the nature of fixed costs, also in the absence of information it is assumed that other costs are also apportioned between the two products equally.