Question: Rocky Mountain Corporation makes two types of hiking boots Xactive and

Rocky Mountain Corporation makes two types of hiking boots—Xactive and the Pathbreaker.
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:
Estimated total manufacturing overhead . . . . . . . . . . $2,200,000
Estimated total direct labor-hours . . . . . . . . . . . . . . . . 110,000 DLHs

Required:
1. Using Exhibit 7–12 as a guide, compute the product margins for the Xactive and the Path-breaker 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 7–10 as a guide, compute the product margins for the Xactive and the Pathbreaker products under the activity-based costing system.
3. Using Exhibit 7–13 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assignmentsdiffer.


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  • CreatedSeptember 27, 2013
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