Question

Smoky Mountain Corporation makes two types of hiking boots--the Xtreme and the Pathfinder. Data concerning these two product lines appear below: 5 ots Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales Xtreme $ 128.00 $ 63.10 $ 12.ee 1.5 DLHS 20,eee units Pathfinder $ 90.ee $50.00 $ 8.ee 1. DLHS 7e,eee units eBook Print Reference 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 Estimated total direct labor-hours $ 2,100,000 1ee, DLHS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's 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)

Answer 1

Required 1 (traditional costing)

	Xtreme	Pathfinder	Total
Total sales	2,560,000	6,300,000	8,860,000
Total cost	2,132,000	5,530,000	7,662,000
Product margin	428,000	770,000	1,198,000
Product margin %	16.72%	12.22%	13.52%

Required 2 (Activity based costing)

	Xtreme	Pathfinder	Total
Total sales	2,560,000	6,300,000	8,860,000
Total cost	2,415,500	5,203,500	7,619,000
Product margin	144,500	1,096,500	1,241,000
Product margin %	5.64%	17.40%	14.01%

Required 3

	Xtreme	%	Pathfinder	%	Total
No. of units	20,000		70,000
Traditional cost system
Direct materials	1,262,000	59.19%	3,500,000	63.29%	4,762,000
Direct labor	240,000	11.26%	560,000	10.13%	800,000
Manufacturing OH	630,000	29.55%	1,470,000	26.58%	2,100,000
Total cost	2,132,000	100.00%	5,530,000	100.00%	7,662,000
Activity based costing
Direct costs:
Direct materials	1,262,000	52.25%	3,500,000	67.26%	4,762,000
Direct labor	240,000	9.94%	560,000	10.76%	800,000
Indirect costs:
Supporting direct labor	223,500	9.25%	521,500	10.02%	745,000
Batch setups	340,000	14.08%	272,000	5.23%	612,000
Product sustaining	350,000	14.49%	350,000	6.73%	700,000
Total cost assigned to products	2,415,500	100%	5,203,500	100%	7,619,000
Costs not assigned to products
Other OH					43,000
Total cost					7,662,000