Chapter 7 Graded Problems Help 2 Smoky Mountain Corporation makes two types of h
ID: 2576510 • Letter: C
Question
Chapter 7 Graded Problems Help 2 Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below 99.00 53.00 Selling price per unit Direat materials per unit Direct 1labor per unit Direct labor- Estinated annual produetion and sales $140.00 s 72.00 24.00 points 12.00 per unit 2.0 DIEs 20,000 units 1.0 DLE 80,000 units The company has a traditional costing system which concerning manufacturing overhead and direct labor-hours for the upcoming year appear below. in which manufacturing overhead is applied to units based on direct labor-hours. Deta Entinated total manufacturing overhead Estimated total direat labor-hours 1,980,000 120,000 DLHS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overheed to the following four activity cost pools the Other cost pool includes organization-sustaining costs and idle capacity costs): Eatinated Overhead Cost Xtrone PathfinderTotal Expected Aetivity vities and Aetivity Measures Gupporting direet labor (direct labor-hours) Batch setups (setups) Produet sustaining (number of producta) 783,600 40,000 80,000 120,000 495,000 602,400 99,000A 200 100 300 Other NA Total sanufacturing overhead cost 1,980,000 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments Prev 2015 Next >Explanation / Answer
a)
*20,000 units of Xtreme @ 2.00 DLH per unit + 80,000 units of the Pathfinder@ 1.0 DLH per unit = 40,000 DLHs + 80,000 DLHs = 120,000 DLHs.
The product margins using the traditional approach would be computed as follows:
Xtreme
Pathfinder
Total
Sales...............................
$2,800,000
$7,920,000
$10,720,000
Direct materials.................
1,440,000
4,240,000
5,680,000
Direct labor.......................
480,000
960,000
1,440,000
Manufacturing overhead
applied @ $16.50 per
direct labor-hour.............
660,000
1,320,000
1,980,000
Total manufacturing cost....
2,580,000
6,520,000
9,100,000
Product margin.................
$ 220,000
$1,400,000
$ 1,620,000
b) The first step is to determine the activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Supporting direct labor.................
$783,600
120,000
DLH
$6.53
per DLH
Batch setups........
$495,000
300
setups
$1,650
per setup
Product sustaining
$602,400
2
products
$301,200
per product
*The Other activity cost pool is not shown above because it includes organization-sustaining and idle capacity costs that should not be assigned to products.
Under the activity-based costing system, the product margins would be computed as follows:
Xtreme
Pathfinder
Total
Sales............................
$2,800,000
$7,920,000
$10,720,000
Direct materials..............
1,440,000
4,240,000
5,680,000
Direct labor....................
480,000
960,000
1,440,000
Supporting direct labor...
261,200
522,400
783,600
Batch setups..................
330,000
165,000
495,000
Product sustaining..........
301,200
301,200
602,400
Total cost......................
2,812,400
6,188,600
9,001,000
Product margin..............
$ (12,400)
$1,731,400
$ 1,719,000
c)
3. The quantitative comparison is as follows:
Xtreme
Pathfinder
Total
Traditional Cost System
(a)
Amount
(a) ÷ (c)
%
(b)
Amount
(b) ÷ (c)
%
(c)
Amount
Direct materials................
$1,440,000
25.4%
$4,240,000
74.6%
$5,680,000
Direct labor......................
480,000
33.3%
960,000
66.7%
1,440,000
Manufacturing overhead....
660,000
33.3%
1,320,000
66.7%
1,980,000
Total cost assigned to products..........................
$2,580,000
$6,520,000
$9,100,000
Activity-Based Costing System
Direct costs:
Direct materials................
$1,440,000
25.4%
$4,240,000
74.6%
$5,680,000
Direct labor......................
480,000
33.3%
960,000
66.7%
1,440,000
Indirect costs:
Supporting direct labor......
261,200
33.3%
522,400
66.7%
783,600
Batch setups....................
330,000
66.7%
165,000
33.3%
495,000
Product sustaining............
301,200
50.0%
301,200
50.0%
602,400
Total cost assigned to products..........................
$2,812,400
$6,188,600
9,001,000
Costs not assigned to products:
Other..............................
99,000
Total cost.........................
$9,100,000
Under traditional costing predetermined overhead rate computed as follows: Predetermined overhead rate = Estimated total manufacturing overhead/Estimated total direct labour hours = $1980000/120,000 dlhs =$16.50 per dlhRelated Questions
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