Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder.
Data concerning these two product lines appear below:
Xtreme Pathfinder
$ $ 85.00
Selling price per unit 115.00
Direct materials per unit $ 63.90 $ 51.00
Direct labor per unit $ 12.00 $ 10.00
Direct labor-hours per unit 1.2 DLHs 1.0 DLHs
Estimated annual production and
28,000 units 75,000 units
sales
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$ 2,063,400
Estimated total direct labor-hours 108,600 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):
Estimated Expected Activit
Overhead
Activities and (Activity Measures) Cost Xtreme Pathfinder T
Supporting direct labor (direct labor-
$ 673,320 33,600 75,000 108
hours)
Batch setups (setups) 520,000 280 240
Product sustaining (number of products) 790,000 1 1
Data concerning these two product lines appear below:
Xtreme Pathfinder
$ $ 85.00
Selling price per unit 115.00
Direct materials per unit $ 63.90 $ 51.00
Direct labor per unit $ 12.00 $ 10.00
Direct labor-hours per unit 1.2 DLHs 1.0 DLHs
Estimated annual production and
28,000 units 75,000 units
sales
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$ 2,063,400
Estimated total direct labor-hours 108,600 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):
Estimated Expected Activit
Overhead
Activities and (Activity Measures) Cost Xtreme Pathfinder T
Supporting direct labor (direct labor-
$ 673,320 33,600 75,000 108
hours)
Batch setups (setups) 520,000 280 240
Product sustaining (number of products) 790,000 1 1
