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: Xtreme $120.00 63.50 $ 13.50 Pathfinder Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales $ 92.00 54.00 $9.00 1.5 DLHs 24,000 units 1.0 DLHs 71,000 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 Estimated total direct labor-hours $2,033,000 107,000 DLHs Required 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system Xtreme Pathfinder Total Product margin

Explanation / Answer

1) Manufacturing overhead - allocation Estimated total manufacturing overhead 2033000 Estimated total direct labor hours 107000 DLH's Manufacturing rate per DLH 19 xtreme Pathfinder Total selling price 120 92 Less Direct material 63.5 54 Direct labor 13.5 9 manufacturing overhead 28.5 19 ( 1.5*19) (1*19) Total variable cost 105.5 82 Product margin 14.5 10 24.5 2) ABC Overhead allocation xtreme Pathfinder Total Supporting direct labor 663400 36000 71000 107000 allocated 223200 440200 663400 Batch set up 572000 240 200 440 allocated 312000 260000 572000 Product sustaining 750000 1 1 2 allocated 375000 375000 750000 other 47600 1 1 2 allocated - equally 23800 23800 47600 Total cost alllocated 2033000 934000 1099000 2033000 estmated annual production 24000 71000 95000 Cost per unit 38.92 15.48 21.4 xtreme Pathfinder Total selling price 120 92 Less Direct material 63.5 54 Direct labor 13.5 9 manufacturing overhead 38.92 15.48 Total variable cost 115.92 78.48 Product margin 4.08 13.52 17.60 3)             Xtreme         Pathfinders Total Amount % Amount % Amount Traditional cost system Direct material 63.5 60.19% 54 65.85% 117.5 Direct labor 13.5 12.80% 9 10.98% 22.5 manufacturing overhead 28.50 27.01% 19.00 23.17% 47.5 Total 105.5 82.00 187.50 Activity based Direct material 63.5 60.19% 54 65.85% 117.5 Direct labor 13.5 12.80% 9 10.98% 22.5 manufacturing overhead 38.92 36.89% 15.48 18.88% 54.40 Total 115.9167 78.48 194.40

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