Question: Problem 6-17 - Step by step solution? Book: Managerial Accounting for Managers ISBN: 978-1-259-57854-0 Smoky Mountain Corporation makes two types of hiking bootsXtreme and the
Problem 6-17 - Step by step solution?
Book: Managerial Accounting for Managers ISBN: 978-1-259-57854-0
Smoky Mountain Corporation makes two types of hiking bootsXtreme and the Pathfinder. Data concerning 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 | |||
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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 | $ | 1,980,000 | ||
| Estimated total direct labor-hours | 120,000 | DLHs | ||
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Required:
1. Compute the product margins for the Xtreme and the Pathfinder products under the companys traditional costing system. (Round your intermediate calculations to 2 decimal places.)
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 | 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 | 200 | 100 | 300 | |||||||||
| Product sustaining (number of products) | 602,400 | 1 | 1 | 2 | |||||||||
| Other | 99,000 | NA | NA | NA | |||||||||
| Total manufacturing overhead cost | $ | 1,980,000 | |||||||||||
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Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your "Percentage" answers to 1 decimal place. (i.e. .1234 should be entered as 12.3))
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