Homework Soursecompany has a tradional costing sym in wch manufacturing ove
Solution
1. Computation of product margin for Xtreme and Pathfinder (using traditional approach):
Xtreme
Pathfinder
Total
Calculation
Amount
Calculation
Amount
Sales
29,000*116
$3,364,000
76,000*80
$6,080,000
$9,444,000
Less: expenses
Direct material
29,000*64
1,856,000
76,000*52
3,952,000
5,808,000
Direct labor
29,000*65
348,000
76,000*8
608,000
956,000
Manufacturing overhead ($16 per DLH, note-1)
29,000*1.5*16
696,000
76,000*1*16
1,216,000
1,912,000
Total expenses
2,900,000
5,776,000
8,676,000
Product margin
$464,000
$304,000
$768,000
Note-1:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor-hours
= $1,912,000 / 119,500 DLHs = $16 per DLH
2. Computation of product margin for Xtreme and Pathfinder (using ABC approach):
Xtreme
Pathfinder
Total
Calculation
Amount
Calculation
Amount
Sales
29,000*116
3,364,000
76,000*80
6,080,000
9,444,000
Less: expenses
Direct material
29,000*64
1,856,000
76,000*52
3,952,000
5,808,000
Direct labor
29,000*65
348,000
76,000*8
608,000
956,000
Manufacturing overhead (note-2)
Supporting direct labor
43,500*5.05
219,675
76,000*5.05
383,800
603,475
Batch setups
290*1,100
319,000
200*1,100
220,000
539,000
Product sustaining
1*320,000
320,000
1*320,000
320,000
640,000
Total expenses
3,062,675
5,483,800
8,546,475
Product margin
301,325
596,200
897,525
Note-2:
Activity Cost Pool
Total cost
Total activity
Activity Rate
Supporting direct labor
$
603,100
119,500
DLH
$
5.05
per DLH
Batch setups
$
539,000
490
setups
$
1,100
per setup
Product sustaining
$
640,000
2
products
$
320,000
per product
3. Computation of quantitative comparison of the traditional and activity-based cost assignments:
Xtreme
Pathfinder
Total
Amount
% of Total amount
Amount
% of Total amount
Traditional costing system
Direct material
1,856,000
64%
3,952,000
68%
5,808,000
Direct labor
348,000
12%
608,000
11%
956,000
Manufacturing overhead
696,000
24%
1,216,000
21%
1,912,000
Total cost assigned to products
2,900,000
5,776,000
8,676,000
Xtreme
Pathfinder
Total
Amount
% of Total amount
Amount
% of
Total amount
ABC costing system
Direct cost:
Direct material
1,856,000
61%
3,952,000
72%
5,808,000
Direct labor
348,000
11%
608,000
11%
956,000
Indirect cost:
Supporting direct labor
219,675
7%
383,800
7%
603,475
Batch setups
319,000
10%
220,000
4%
539,000
Product sustaining
320,000
10%
320,000
6%
640,000
Total cost assigned to products
3,062,675
5,483,800
8,546,475
Cost not assigned to products
39,900
Total cost
8,586,375
| Xtreme | Pathfinder | Total | |||
| Calculation | Amount | Calculation | Amount | ||
| Sales | 29,000*116 | $3,364,000 | 76,000*80 | $6,080,000 | $9,444,000 |
| Less: expenses | |||||
| Direct material | 29,000*64 | 1,856,000 | 76,000*52 | 3,952,000 | 5,808,000 |
| Direct labor | 29,000*65 | 348,000 | 76,000*8 | 608,000 | 956,000 |
| Manufacturing overhead ($16 per DLH, note-1) | 29,000*1.5*16 | 696,000 | 76,000*1*16 | 1,216,000 | 1,912,000 |
| Total expenses | 2,900,000 | 5,776,000 | 8,676,000 | ||
| Product margin | $464,000 | $304,000 | $768,000 |
