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

Question:

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

Particulars Xtreme Pathfinder
Selling price per unit $120.00$87
Direct materials per unit $63.30$52.00
Direct labor per unit $17.00$10.00
Direct labor-hours per unit 1.7 DLHs 1.0 DLHs
Estimated annual production and sales 22,000 units 76,000 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 $1,927,800 Estimated total direct labor-hours 113,400 DLHs Required 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Do not round your intermediate calculations.) 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): Activity and Activity measures Estimated overhead cost Estimated Activity Xtreme Pathfinder Total Supporting direct labor ( direct labor-hours)$703,080 37,400 76,000 113,400
Batch Setups (setups) 480,000 220 180 400
product sustaining ( number of products) 700,000 1 1 2
Other 44,720 NA NA NA

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

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

Cost Drivers:

Cost drivers are those that direct the cost, meaning, the costs to be allocated in each unit, in each cost pool, decreases as the level of cost drivers increases. This means that in case the salaries are distributed through labor hours, the salary rate per labor hour decreases as the level of labor hours incurred increases.