Smoky Mountain Corporation makes two types of hiking boots Xtreme and the Pathfi

Question

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 Direct materials per unit Direct labor per unit Direct labor hours per unt Estimated annual production and sales S 141.00 S 64 50 S 17 00 S 91.00 S 52.00 S 10.00 7 DLHS 23,000 units 1.0 DLHs 74,000 units company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concening manufacturing overhead and direct labor-hours for the upcoming year appear below Estimated total manufacturing overhead Estimated total direct labor-hours $2,714,400 113,100 DLHs 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.) Required: Total Xtreme Pathfinder Product margin 8

Explanation / Answer

1) TRADITIONAL COSTING SYSTEM: Extreme (23000 units) Pathfinder (74000 units) Total Unit cost Toral Unit cost Sales revenue 3243000 141 6734000 91 Cost of production: Direct material 1483500 64.5 3848000 52 Direct labor 391000 17 740000 10 Overhead applied: 1.7*23000*24 938400 40.8 1*74000*24 1776000 24 Total cost of production 2812900 122.3 6364000 86 9176900 Margin 430100 18.7 370000 5 Pre-determined OH rate = 2714400/113100 = $24 per DLH 2) ABC COSTING SYSTEM: Estimated Expected Activity Activity cost   Activities and Activity Measures Overhead Cost Xtreme Pathfinder Total rate   Supporting direct labor (direct labor-hours) 7,91,700 30100 74000 104100              7.61   Batch setups (setups) 10,62,000 340 250 590           1,800   Product sustaining (number of products) 7,90,000 1    1    2     3,95,000   Other 70,700 NA    NA    NA 27,14,400 Extreme (23000 units) Pathfinder (74000 units) Total Unit cost Toral Unit cost Sales revenue 3243000 141 6734000 91 Cost of production: Direct material                      14,83,500           64.50 3848000        52.00 Direct labor                        3,91,000           17.00 740000        10.00 Overhead applied: Supporting direct labor cost                        2,28,916             9.95 5,62,783.86          7.61 Batch setup cost                        6,12,000           26.61        4,50,000          6.08 Product sustaining costs                        3,95,000           17.17 395000          5.34 Total cost of production                      31,10,416        135.24 5995783.86        81.02 Margin                        1,32,584             5.76 738216.138          9.98 870800 Quantitative Comparasion of traditional and Activity based cost assignments Traditional Cost system Xtreme Pathfinder Amount % of total amount Amount % of total amount Total amount Direct Material(DM) 1483500 53% 3848000 60% 5331500 Direct Labour(DL) 391000 14% 740000 12% 1131000 Manufacturing overhead(M.Ohd) 938400 33% 1776000 28% 2714400 Total 2812900 100 6364000 100 9176900 Activity Based Costing system Xtreme Pathfinder Amount % of total amount Amount % of total amount Total amount Direct costs Direct Material(DM) 1483500 48% 3848000 64% 5331500 Direct Labour(DL) 391000 13% 740000 12% 1131000 Indirect costs Supporting Direct Labour 228916.14 7% 562783.9 9% 791700 Batch set ups 612000 20% 450000 8% 1062000 Product sustaining 395000 13% 395000 7% 790000 Total cost assigned to products 3110416.1 100 5995784 100 9106200 Costs not assigned to products Other 70700 Total cost 9176900

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