Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfi
ID: 2422633 • Letter: S
Question
Smoky Mountain Corporation makes two types of hiking boots—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:
Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Do not round your intermediate calculations.)
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):
Expected Activity
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3))
Xtreme Pathfinder Selling price per unit $ 124.00 $ 88.00 Direct materials per unit $ 63.40 $ 53.00 Direct labor per unit $ 14.40 $ 8.00 Direct labor-hours per unit 1.8 DLHs 1.0 DLHs Estimated annual production and sales 23,000 units 70,000 units
Explanation / Answer
SMOKY MOUNTAIN CORPORATION XTREME PATHWAY Selling Price per unit $ 124.00 $ 88.00 Variable materials per unit $ 63.40 $ 53.00 Direct labour cost per unit $ 14.40 $ 8.00 Direct labour hour per unit 1.8 DLH 1 DLH Estimated production and sales 23,000 units 70,000 units Estimated total manufacturing overhead 2,005,200 Estimated total direct labour hour 111,400 DLH Predetermined overhead rate $ 18.00 ans 1) XTREME PATHWAY Total Sales $ 2,852,000.00 $ 6,160,000.00 $ 9,012,000.00 Variable material cost $ 1,458,200.00 $ 3,710,000.00 $ 5,168,200.00 Direct Labour cost $ 331,200.00 $ 560,000.00 $ 891,200.00 Manufacturing Overhedad cost $ 745,200.00 $ 1,260,000.00 $ 2,005,200.00 Total Manufacturing cost $ 2,534,600.00 $ 5,530,000.00 $ 8,064,600.00 Product Margin $ 317,400.00 $ 630,000.00 $ 947,400.00 Ans 2) Total Cost Total Activity Activity Rate Activity Cost Pool Supporting Direct Labour 712,960 111,400 6.4 DLH Batch Setup 504,000 420 1200 Set up Product sustaining 740,000 2 370000 Number of product XTREME PATHWAY Total Sales $ 2,852,000.00 $ 6,160,000.00 $ 9,012,000.00 Variable material cost $ 1,458,200.00 $ 3,710,000.00 $ 5,168,200.00 Direct Labour cost $ 331,200.00 $ 560,000.00 $ 891,200.00 DirectLabour $ - Supporting $ 264,960.00 $ 448,000.00 $ 712,960.00 Batch set up $ 276,000.00 $ 228,000.00 $ 504,000.00 Product Sustaining $ 370,000.00 $ 370,000.00 $ 740,000.00 Total Manufacturing Expenses $ 2,700,360.00 $ 5,316,000.00 $ 8,016,360.00 Product Margin $ 151,640.00 $ 844,000.00 $ 995,640.00 ANS 3) Quantitative Comparison Traditional costing system XTREME PATHWAY Variable material cost 0.28 $ 0.72 Direct Labour cost 0.37 $ 0.63 Manufacturing Overhedad cost 0.37 $ 0.63 Quantitative Comparison Absorbtion Costing Method XTREME PATHWAY Variable material cost $ 0.28 $ 0.72 Direct Labour cost $ 0.37 $ 0.63 DirectLabour Supporting 0.37 0.63 Batch set up 0.55 0.45 Product Sustaining 0.5 0.5
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