Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfi
ID: 2501815 • Letter: S
Question
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme Pathfinder
Selling price per unit $115.00 $83.00
Direct materials per unit $65.10 $50.00
Direct labor per unit $10.00 $10.00
Direct labor-hours per unit 1.0 DLHs 1.0 DLHs
Estimated annual production 29,000 units 71,000 units
and sales
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.
Xtreme Pathfinder
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.
Prepare a quantitative comparison of the traditional and activity-based cost assignments.
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 $1,800,000 Estimated total direct labor-hours 100,000 DLHsCompute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.
Xtreme Pathfinder
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):
EstimatedExpected Activity
Activities and Activity Measures Overhead Cost Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) $ 520,000 29,000 71,000 100,000 Batch setups (setups) 781,000 400 310 710 Product sustaining (number of products) 440,000 1 1 2 Other 59,000 NA NA NA Total manufacturing overhead cost $ 1,800,000Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
Prepare a quantitative comparison of the traditional and activity-based cost assignments.
Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional Cost System Total cost assigned to productsExplanation / Answer
Smoky Montain Corp details Amt $/Hrs Estimated Mfg Overhead 1,800,000 Estimated total DLH 100,000 Estimated OH rate per DLH 18.00 Cost of products under traditional costing Margin for Products Xtreme/unit Pathfinder/unit Total Xreme Total Pathfinder Selling Price 115 83 3,335,000 5,893,000 Direct Materials 65.10 50.00 1,887,900 3,550,000 Direct Labor 10.00 10.00 290,000 710,000 Manufacturing OH 18.00 18.00 522,000 1,278,000 Total Cost 93.10 78.00 2,699,900 5,538,000 Margin 21.90 5.00 635,100 355,000 Units to be produced 29,000 71,000 Activity based cost Activity Measure Activities & Maesures OH Cost Xtreme Pathfinder Total Supporting Direct Labor/DLH 520,000 29,000 71,000 100,000 Allocation of Supporting Direct Labor 150,800 369,200 520,000 Batch setups/Set up nos 781,000 400 310 710 Set up cost allocation 440,000 341,000 781,000 Product sustaining(no of products) 440,000 1 1 2 Alloaction of product sustaining cost 220,000 220,000 440,000 Total OH Allocated 810,800 930,200 1,741,000 No of units to be produced 29,000 71,000 OH allocation per unit 27.96 13.10 Profit Margin as per ABC Margin for Products Xtreme/unit Pathfinder/unit Total Xreme Total Pathfinder Selling Price 115 83 3,335,000 5,893,000 Direct Materials 65.10 50.00 1,887,900 3,550,000 Direct Labor 10.00 10.00 290,000 710,000 Manufacturing OH 27.96 13.10 810,800 930,200 Total Cost 103.06 73.10 2,988,700 5,190,200 Margin 11.94 9.90 346,300 702,800 No fo units to be produced 29,000 71,000 Total margin 346,300.00 702,800.00 Qualitatibe comparision of OH cost Allocation Xtreme Pathfinder Details Amt $ % Of Total Alloaction Amt $ % Of Total Alloaction Traditional costing 522,000 29.00 1,278,000 71 ABC costing 810,800 47 930,200.00 53
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