Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pa
ID: 2401208 • Letter: S
Question
Smoky Mountain Corporation makes two types of hiking boots—the Xtreme 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:
Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.
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):
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Xtreme Pathfinder Selling price per unit $ 141.00 $ 91.00 Direct materials per unit $ 64.50 $ 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 23,000 units 74,000 unitsThe 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 $ 2,714,400 Estimated total direct labor-hours 113,100 DLHsRequired:
1. Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.
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):
EstimatedOverhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 791,700 39,100 74,000 113,100 Batch setups (setups) 1,062,000 340 250 590 Product sustaining (number of products) 790,000 1 1 2 Other 70,700 NA NA NA Total manufacturing overhead cost $ 2,714,400
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
Overhead Allocation - Traditional Costing System Particulars Xtreme Pathfinder Total Estimated annual Production (In units) 23000 74000 Direct Labour Hours Per unit 1.7 1 Total Direct Labour Hours 39100 74000 113100 Overhead Cost Allocation basis direct labour hours (Overhead / Total hours * Labor hours of model) $938,400.00 $1,776,000.00 $2,714,400.00 Manufacturing overhead cost per unit (Allocated Overhead / Nos of units) $40.80 $24.00Related Questions
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