Required 1 2 pter 7 Saved Smoky Mountain Corporation makes t

pter 7 Saved Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below xtremePathfinder Selling price per unit Direct materials per unit Direct labor per unit Direct Estimated annual production and sales 80.0 50.00 10.00 $120.00 64.80 $13.00 1.0 DLHs 1.3 DLH 26,000 units Labor-hours per unit 72,000 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 Estimated total direct labor-hours $1,904,400 105, 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) Estinated Expected Activity overhead Cost Xtreme Pathfinder Total Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setups) Product sustaining (number of products) Other $581,900 33,800 72,000 105,800 650 280 650,000 600, 000 370 NA NA NA $ 1,904, 400 Total manufacturing overhead cost 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

Solution

(1) Traditional Costing :-

Xtreme

Pathfinder

SP pu

120

80

(-) DM pu

64.80

50

(-) DL pu

13

10

(-) MOH

(1.3 hrs * 18)

=23.4

(1 hr * 18)

=18

Margin pu

18.8

2

Units sold

26000

72000

Total Product Margin

488800

144000

Manufacturing O/H Rate using Traditional costing :-

                                            = Estimated total mfr OH / Estimated total direct labour hrs

                                          = 1904400/105800 = $ 18

(2) ABC Costing :-

Xtreme

Pathfinder

Sale

(26000 * 120)

=3120000

(72000 * 80)

=5760000

(-) DM cost

(26000 * 64.80)

=1684800

(72000 * 50)

=3600000

(-) DL cost

(26000 * 13)

=338000

(72000 * 10)

=720000

(-) Manufacturing O/H :-

Supporting DL

(581900/105800) * 33800

=185900

(581900/105800) * 72000

=396000

Batch setup

(650000/650) * 370

=370000

(650000/650) * 280

=280000

Product sustaining

(600000/2) * 1

=300000

(600000/2) * 1

=300000

Total Product Margin

241300

464000

(3) Quantitative Comparison :-

Xtreme

Pathfinder

Total

Amount

% of Total Amt

Amount

% of Total Amt

Amount

Traditional cost system

DM

(64.8 * 26000)

=1684800

31.88 %

(50 * 72000)

=3600000

68.12 %

5284800

DL

(13 * 26000)

=338000

31.95 %

(10 *72000)

=720000

68.05 %

1058000

MOH

(23.4 * 26000)

=608400

31.95 %

(18 * 72000)

=1296000

68.05 %

1904400

Total cost assigned to product

2631200

5616000

8247200

Xtreme

Pathfinder

Total

Amount

% of Total Amt

Amount

% of Total Amt

Amount

ABC Costing :

DM

(64.8 * 26000)

=1684800

31.88 %

(50 * 72000)

=3600000

68.12 %

5284800

DL

(13 * 26000)

=338000

31.95 %

(10 *72000)

=720000

68.05 %

1058000

MOH:-

Supporting DL

185900

31.95%

396000

68.05%

581900

Batch setup

370000

56.92%

280000

43.08%

650000

Product sustaining

300000

50%

300000

50%

600000

Total cost assigned to product

2878700

5296000

8174700

Other

72500

Total Cost

8247200

	Xtreme	Pathfinder
SP pu	120	80
(-) DM pu	64.80	50
(-) DL pu	13	10
(-) MOH	(1.3 hrs * 18) =23.4	(1 hr * 18) =18
Margin pu	18.8	2
Units sold	26000	72000
Total Product Margin	488800	144000