Smoky Mountain Corporation makes two types of hiking boots—Xtrem
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:
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:
1. Using Exhibit 8–12 as a guide, 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):
Using Exhibit 8—10 as a guide, compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system.
3. Using Exhibit 8—13 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignmentsdiffer.