Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:  XtremePathfinderSelling price per unit\$132.00 \$94.00 Direct materials per unit\$64.60 \$53.00 Direct labor per unit\$9.60 \$8.00 Direct labor-hours per unit 1.2DLHs 1.0DLHsEstimated annual production and sales 24,000units 70,000units  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\$2,470,000 Estimated total direct labor-hours 98,800DLHs  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):  EstimatedOverhead CostExpected ActivityActivities and Activity MeasuresXtremePathfinderTotalSupporting direct labor (direct labor-hours)\$642,200 28,80070,00098,800Batch setups (setups) 915,000 350260610Product sustaining (number of products) 840,000 112Other 72,800 NANANATotal manufacturing overhead cost\$2,470,000      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.

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Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:

 Xtreme Pathfinder Selling price per unit \$ 132.00 \$ 94.00 Direct materials per unit \$ 64.60 \$ 53.00 Direct labor per unit \$ 9.60 \$ 8.00 Direct labor-hours per unit 1.2 DLHs 1.0 DLHs Estimated annual production and sales 24,000 units 70,000 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 \$ 2,470,000 Estimated total direct labor-hours 98,800 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):

 EstimatedOverhead Cost Expected Activity Activities and Activity Measures Xtreme Pathfinder Total Supporting direct labor (direct labor-hours) \$ 642,200 28,800 70,000 98,800 Batch setups (setups) 915,000 350 260 610 Product sustaining (number of products) 840,000 1 1 2 Other 72,800 NA NA NA Total manufacturing overhead cost \$ 2,470,000

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.

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Step 2

Calculating the value of manufacturing overhead per unit. We have,

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