Smoky Mountain Corporation makes two types of hiking boots%u2014Xtreme and the P

Question

Smoky Mountain Corporation makes two types of hiking boots%u2014Xtreme and the Pathfinder. Data concerning these two product lines appear below:

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:

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):

1,446,970

$4,332,600

Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative amount should be indicated by a minus sign. Do not round your intermediate calculations. Omit the "$" sign in your response.)

Smoky Mountain Corporation makes two types of hiking boots%u2014Xtreme and the Pathfinder. Data concerning these two product lines appear below:

Explanation / Answer

Requirement 1:
(a) Calculate the predetermined overhead rate.(Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Estimated manufacturing overhead $1,980,000
Estimated total direct labor hours        120,000 DLHs
Predetermined overhead rate $1,980,000 / 120,000 = $16.50 per DLH

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

                                              Xtreme        Pathfinder

Sales Revenue                      $2,800,000      $7,920,000
Direct materials                   $1,440,000      $4,240,000
Direct labor                        $480,000        $960,000
Manufacturing OH
Supporting DL
$783,600 x 40,000/120,000             $261,200
$783,600 x 80,000/120,000                                     $522,400
Batch setups
$495,000 x 200/300           $330,000
$495,000 x 100/300                                    $165,000
Product sustaining
$602,400 x 1 / 2                 $301,200
$602,400 x 1 / 2                                         $301,200
Total manufacturing cost $2,812,400       $6,188,600
Product margin              - $12,400      $1,731,400

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
                                                   Xtreme       Pathfinder
Manufacturing overhead
under traditional costing              $660,000     $1,320,000

Manufacturing overhead
under Activity based costing        $892,400        $988,600
Difference                              $232,400      $331,400

Under Aactivity based costing system, more appropriate allocation has been made to both the products as it identifies activities and allocates cost on that basis to each product.

(b)

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

                                       Xtreme        Pathfinder

Sales Revenue               $2,800,000      $7,920,000
Direct materials              $1,440,000      $4,240,000
Direct labor                     $480,000        $960,000
Manufacturing OH
20,000x2DLHx$16.50        $660,000
80,000x1DLHx$16.50                           $1,320,000
Total manufacturing cost  $2,580,000    $6,520,000
Product margin               $220,000    $1,400,000


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

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