Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data...


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

Selling price per unit$140.00$99.00
Direct materials per unit$72.00$53.00
Direct labor per unit$24.00$12.00
Direct labor-hours per unit2.0DLHs1.0DLHs
Estimated annual production and sales20,000 units80,000 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$1,980,000
Estimated total direct labor-hours120,000 DLHs

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

Predetermined Overhead Rate:

The predetermined overhead rate is the rate that is used to apply the overhead costs to products manufactured. In the traditional costing system, the predetermined rate is usually based on direct labor hours or machine hours.

Answer and Explanation: 1

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We must first calculate the predetermined overhead rate,

Estimated overhead cost $1,980,000
Estimated overhead driver 120,000 DLHs

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Learn more about this topic:

Comparing Traditional Costing & Activity-Based Costing


Chapter 7 / Lesson 6

Traditional and activity-based costing methods have similarities and differences based on the production methods of a company. Learn about the costs in production and see the comparisons between traditional and activity-based costing systems.

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