Compute the product margins for the xtreme products

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Reference no: EM131572645

Problem -

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

$141.00

$91.00

Direct materials per unit

$64.50

$52.00

Direct labor per unit

$17.00

$10.00

Direct labor-hours per unit

1.7 DLHs

1.0 DLHs

Estimated annual production and sales

23,000 units

74,000 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 - $ 2,714,400                    

Estimated total direct labor-hours - 113,100 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 overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):

Activities and Activity Measures

Estimated Overhead Cost

Activity

Xtreme

Pathfinder

Total

Supporting direct labor (direct labor-hours)

$791,700

39,100

74,000

113,100

Batch setups (setups)

1,062,000

340

250

590

Product sustaining (number of products)

790,000

1

1

2

Other

70,700

NA

NA

NA

Total manufacturing overhead cost

$2,714,400




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.

Reference no: EM131572645

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