Compute the product margins for the xactive products

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Reference no: EM131798874

QUESTION - Rocky Mountain Corporation makes two types of hiking boots-Xactive and the Pathbreaker. Data concerning these two product lines appear below:


Xactive

Pathbreaker

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 Xactive and the Pathbreaker 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):


Estimated

Expected Activity

Activities and Activity Measures

Overhead Cost

Xactive

Pathbreaker

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 Xactive and the Pathbreaker products under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Reference no: EM131798874

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