50.1K

Verified Solution

Link Copied!

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	$	120.00		$	92.00
Direct materials per unit	$	63.50		$	54.00
Direct labor per unit	$	13.50		$	9.00
Direct labor-hours per unit		1.5	DLHs		1.0	DLHs
Estimated annual production and sales		24,000	units		71,000	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	$	2,033,000
Estimated total direct labor-hours		107,000	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)	$	663,400		36,000	71,000	107,000
Batch setups (setups)		572,000		240	200	440
Product sustaining (number of products)		750,000		1	1	2
Other		47,600		NA	NA	NA
Total manufacturing overhead cost	$	2,033,000

************BOLD ANSWERS ARE INCORRECT EVERYTHING ELSE IS CORRECT**************

Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

	Xtreme Pathfinder Total Product margin $186,000 $710,000 $896,000

Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Round your intermediate calculations to 2 decimal places.)

	Xtreme Pathfinder Total Product margin $(64,000) $960,000 $896,000

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place.)

Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Direct materials $1,524,000 57.0 % $3,834,000 66.0 % $5,358,000 Direct labor 486,000 18.0 % 639,000 11.0 % 1,125,000 Manufacturing overhead 684,000 25.0 % 1,349,000 23.0 % 2,033,000 Total cost assigned to products $2,694,000 $5,822,000 $8,516,000 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity-Based Costing System Direct costs: Direct materials $1,524,000 52.0 % $3,834,000 69.0 % $5,358,000 Direct labor 486,000 17.0 % 639,000 11.0 % 1,125,000 Indirect costs: Supporting direct labor 223,200 8.0 % 440,200 8.0 % 663,400 Batch setups 312,000 11.0 % 260,000 5.0 % 572,000 Product sustaining 375,000 13.0 % 375,000 7.0 % 750,000 Total cost assigned to products $2,920,200 $5,548,200 $8,468,400 Costs not assigned to products: Other 47,600 Total cost $8,516,000

Answer & Explanation Solved by verified expert

See Answer