Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfi
ID: 2530137 • 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
$
138.00
$
90.00
Direct materials per unit
$
64.40
$
51.00
Direct labor per unit
$
13.50
$
9.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
73,000
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
$
2,438,000
Estimated total direct labor-hours
106,000
DLHs
Required:
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.)
Xtreme
Pathfinder
Total
Product margin
$0
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):
.
Estimated
Activity
Activities and Activity Measures
Overhead Cost
Xtreme
Pathfinder
Total
Supporting direct labor (direct labor-hours)
$
646,600
33,000
73,000
106,000
Batch setups (setups)
969,000
330
240
570
Product sustaining (number of products)
780,000
1
1
2
Other
42,400
NA
NA
NA
Total manufacturing overhead cost
$
2,438,000
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.)
Xtreme
Pathfinder
Total
Product margin
$0
Xtreme
Pathfinder
Total
% of
% of
Amount
Total Amount
Amount
Total Amount
Amount
Traditional Cost System
%
%
%
%
%
%
Total cost assigned to products
$0
$0
0
3. 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
Total
% of
% of
Amount
Total Amount
Amount
Total Amount
Amount
Activity-Based Costing System
Direct costs:
%
%
%
%
Indirect costs:
%
%
%
%
%
%
Total cost assigned to products
$0
$0
$0
Costs not assigned to products:
Total cost
$0
Xtreme
Pathfinder
Selling price per unit
$
138.00
$
90.00
Direct materials per unit
$
64.40
$
51.00
Direct labor per unit
$
13.50
$
9.00
Direct labor-hours per unit
1.5
DLHs
1.0
DLHs
Estimated annual production and sales
22,000
units
73,000
units
Explanation / Answer
Computation of Overhead Recovery Rate Estimated total manufacturing overhead $2,438,000.00 Estimated total direct labor-hours (In DLH) 106000 Manufacturing Overhead per DLH $23.00 1. Computation of product Margin Xtreme Pathfinder Selling price per unit $138.00 $90.00 Less: Direct materials per unit $64.40 $51.00 Direct labor per unit $13.50 $9.00 MOH per unit (1.5 DLHX$23) (1DLHX$23) $34.50 $23.00 Product margin $25.60 $7.00 W/NoteComputation of per Activity Overhead and allocation of Overhead on Product Estimated Expected Activity Per activity overhead Allocation of Overhead Activities and activity measures Overhead Cost Xtreme Pathfinder Total Xtreme Pathfinder Supporting Direct labor(DLH) 646600 33000 73000 106000 6.1 201300 445300 Batch Setups(Setups) 969000 330 240 570 1700 561000 408000 Product Sustaining(numberof products) 780000 1 1 2 390000 390000 390000 Other 42400 NA NA NA NA Total manufacturing overhead cost 2438000 1152300 1243300 No. of Unit 22000 73000 Manufacturing Overhead Per Unit 52.38 17.03 2. Computation of Product margin on Activty based costing system Xtreme Pathfinder Selling price per unit $138.00 $90.00 Less: Direct materials per unit $64.40 $51.00 Direct labor per unit $13.50 $9.00 MOH per unit $52.38 $17.03 Product margin $7.72 $12.97 Requirement -3 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Traditional cost system Direct Material $3,036,000 0.58 $3,723,000 0.61 $6,759,000 Direct Labor $1,416,800 0.27 $657,000 0.11 $2,073,800 manufacturing overhead $759,000 0.15 $1,679,000 0.28 $2,438,000 Total cost assigned to products $5,211,800 1.00 $6,059,000 1.00 $11,270,800 Requirement -4 Xtreme Pathfinder Total % of % of Amount Total Amount Amount Total Amount Amount Activity based costing system Direct cost: Direct Material $3,036,000 0.54 $3,723,000 0.66 $6,759,000 Direct Labor $1,416,800 0.25 $657,000 0.12 $2,073,800 Indirect cost: manufacturing overhead $1,152,360 0.21 $1,243,190 0.22 $2,395,550 Total cost assigned to products $5,605,160 1.00 $5,623,190 1.00 $11,228,350 Cost not assigned to products $42,400 Total cost $11,270,750
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