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Smoky Mountain Corporation makes two types of hiking boots$$Xtreme and Pathfinder. Data concerning these two product lines appear below:

Xtreme Pathfinder

Selling price per unit $ $138\mathrm{.}00$ $ $90\mathrm{.}00$

Direct materials per unit $ $64\mathrm{.}40$ $ $51\mathrm{.}00$

Direct labor per unit $ $13\mathrm{.}50$ $ $9\mathrm{.}00$

Direct labor$-$hours per unit $1\mathrm{.}5$ DLHs $1\mathrm{.}0$ DLH

Estimated annual production and sales $22,000$ units $73,000$ units

The company has a traditional costing system that applies manufacturing overhead 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 $ $2,438,000$

Estimated total direct labor$-$hours $106,000$ DLHs

Required:

Compute the product margins for Xtreme and Pathfinder under the company$$s traditional costing system.

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$)$:

Activities and $($Activity Measures$)$ Estimated Overhead Cost Expected Activity

Xtreme Pathfinder Total

Supporting direct labor $($direct labor$-$hours$)$ $ $646,60033,00073,000106,000$

Batch setups $($setups$)969,000330240570$

Product sustaining $($number of products$)780,000112$

Other $42,400$ NA NA NA

Total manufacturing overhead cost $ $2,438,000$

Compute the product margins for Xtreme and Pathfinder under the activity$-$based costing system.

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

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