answer 1 & 2

PROBLEM 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, L07-4 LO7-5) Smoky Mountain Corporation makes two types of hiking bootsXtreme and the Pathfinder. Data concerming these two product lines appear below: Xtreme Pathfinder Selling price per unit $140.00 $99.00 Direct materials per unit $72.00 $53.00 Direct labor per unit.. $24.00 $12.00 Direct labor-hours per unit 2.0 DLHS 1.0 DLHS Estimated annual production and sales 20,000 units 80.000 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 ...... $1,980,000 120,000 DLHS Required: 1. Using Exhibit 7-13 as a guide, compute the product margins for the Xtreme and the Path- finder 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 activ- ity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs): Estimated Expected Activity Activities and Activity Measures Overhead Cost Xtreme Pathfinder Total Supporting direct labor (direct labor-hours)... $ 783,600 40,000 80,000 120,000 Batch setups (setups) .... 495,000 100 300 Product sustaining (number of products) 602,400 Other... 99,000 NA NA Total manufacturing overhead cost $1,980,000 200 1 1 2 NA Using Exhibit 7-11 as a guide, compute the product margins for the Xtreme and the Path- finder products under the activity-based costing system. 3. Using Exhibit 7-14 as a guide, prepare a quantitative comparison of the traditional and activity-based cost assignments. Explain why the traditional and activity-based cost assign- ments differ