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 |
| Total Manufacturing overhead cost | $1,927,800 | |||
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.
Answer and Explanation: 1
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View this answer(a) Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system.
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Chapter 7 / Lesson 8Learn about the activity-based costing method (ABC method). Explore how the ABC method is used, who uses the method, and what the pros and cons are.