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 conceming these two product lines appear below: Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales $ 115.00 S 65.10 S 10.00 S 83.00 $ 50,00 S 10.00 1.0 DLHs 29,000 unts 0 DLHs 71,000 units ed to units based on direct labor-hours. Data conceming manufacturing The company hes a traditional costng system in which manufacturing overhead is appli $1,800,000 Estimated total manufacturing overhead Estimated total direct labor-hours 100.000 DLHs 1. Compute the product margins for the Xtreme and tha Pathlinder products under the company's tradilional cosing system. (Do not round your intermediato calculations.) Required: Xtreme PathfinderTotal 127,800 $ 649,800 Product margin S 522.000 1 2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhesad to the

Explanation / Answer

Req1: Profit margin Under Traditional method XTREME PATHFINDERS Amount Amount TOTAL Number of units 29000 units 71000 units Selling price 115 83 Sales Revenue 3,335,000 5,893,000 9,228,000 Less: Cost assigned under Traditional method 2,699,900 5,538,000 8,237,900 Profit margin under Traditional method 635,100 355,000 990,100 Req2: Profit under ABC Costing XTREME PATHFINDERS Amount Amount TOTAL Number of units 29000 units 71000 units Selling price 115 83 Sales Revenue 3,335,000 5,893,000 9,228,000 Less: Cost assigned underABC costing method 2,988,700 5,190,200 8,237,900 Profit margin under ABC Costing method 346,300 702,800 990,100 Req 3: Overhead absorption rate : Total overehads / total direct labour hours ( 1800,000 /100,000 labour hours ) = $ 18 per hour XTREME PATHFINDERS Amount % of Total Amount % of Total TOTAL Number of units 29000 units 71000 units Labour hour req per unit 1 1 Total labour hours required 29000 hrs 71000 hrs TRADITIONAL METHOD Direct labour(@10 per unit) 290000 29.00% 710000 71.00% 1000000 Direct material(@65.10 and 50 resp.) 1887900 34.72% 3550000 65.28% 5437900 Manufacturing overhead($18 per hour) 522000 29.00% 1278000 71.00% 1800000 Total Cost assigned to product 2,699,900 32.77% 5,538,000 67.23% 8237900 Req 4: Activity based overhead absorption rate: Supporting labour = Total overhead of activity / Labour hours (520,000 /100,000) = $ 5.20 per labour hour Batch setups = Total overhead of activity / Number of setups (781,000 /710 )= $ 1100 per setup Product Sustaining = Total Overhead of activity / Number of product (440,000 /2) = $ 220,000 per product XTREME PATHFINDERS Amount % of Total Amount % of Total TOTAL Number of units 29000 units 71000 units Labour hour req per unit 1 1 Total labour hours required 29000 hrs 71000 hrs Number of setups 400 310 ABC COSTING Direct labour(@10 per unit) 290000 29.00% 710000 71.00% 1000000 Direct material(@65.10 and 50 resp.) 1887900 34.72% 3550000 65.28% 5437900 Indirect Cost: Supporting labour cost(@5.20 per labour hour) 150800 29.00% 369200 71.00% 520000 Batch setup cost ($1100 stup) 440000 56.34% 341000 43.66% 781000 Product Sustaining cost($220,000 per product) 220000 50.00% 220000 50.00% 440000 Total Cost assigned to product 2,988,700 36.54% 5,190,200 63.46% 8178900 Cost not assigned to product 59000 Total cost of product 2988700 5190200 8237900

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