PROBLEM $7-17$ Comparing Traditional and Activity$-$Based Product Margins $$ LO$7-1,$ LO$7-3,$ LO$7-4,$ LO$7-5$

Smoky Mountain Corporation makes two types of hiking boots$-$Xtreme and Pathfinder. Data concerning these two product lines

appear below:

The company has a traditional costing system that applies manufacturing overhead 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

Required:

Using Exhibit $7-12$ as a guide, compute the product margins for Xtreme and Pathfinder under the company's traditional costing

system.

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 Xtreme and Pathfinder under the activity$-$based costing system.

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 assignments differ.