Chack Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and
ID: 2820698 • Letter: C
Question
Chack Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder. Data concerning these two product lines appear below Selling price per unit Direct materials per unit Direct labor per unit Direct labor-hours per unit Estimated annual production and sales Xtreme 120.ee 65.20 11.28 Pathfinder 87.00 51.80 $ 8.80 1.4 DLHs 30,880 units 1.0 DLHs 65,808 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 2,033,eee 107,ee0 DLHs Required: 1. 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)Explanation / Answer
Req 1. Estimated Total Manufacturing Overheads 2033000 Divide: Estimated DLH 107000 OH rate per DLH 19 Xtreme Pathfinder TOTAL Number of units 30000 65000 DLH per unit 1.4 1 Total DLH 42000 65000 107000 OH rate per DLH 19 19 19 Total Overheads 798000 1235000 2033000 Product Margin: Xtreme Pathfinder Total Nnumber of units 30000 65000 Selling price per unit 120 87 Sales revenue 3600000 5655000 9255000 Less: Manufacturing Cost Material 1956000 3315000 5271000 Labour 336000 520000 856000 Overheads 798,000 1235000 2033000 Total cost 3,090,000 5070000 8,160,000 Product Margin 510,000 585000 1,095,000 Req 2. Activity rate and Overheads allocation: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Total Expected Activity Xtreme Pathfinder ACTIVITY COST POOL Overheads Activity Rate Activity OH cost Activity OH cost Supporting labour 631300 107000 5.9 42000 247800 65000 383500 Batch setups 876,000 730 1,200 410 492000 320 384000 Product sustaining 460,000 2 230,000 1 230,000 1 230,000 TOTAL OVERHEADS 969800 997500 Product Margin: Xtreme Pathfinder Total Nnumber of units 30000 65000 Selling price per unit 120 87 Sales revenue 3600000 5655000 9255000 Less: Manufacturing Cost Material 1956000 3315000 5271000 Labour 336000 520000 856000 Overheads 969,800 997500 1967300 Total cost 3,261,800 4832500 8,094,300 Product Margin 338,200 822500 1,160,700 Req 3. Quantitative Comparison Xtreme Pathfinder TOTAL Activity % of Total Activity % of Total AMOUNT Traditional Cost System: Direct Labor 336000 10.87% 520000 10.26% 856000 Direct material 1956000 63.30% 3315000 65.38% 5271000 Manufacturing Overheads 798000 25.83% 1235000 24.36% 2033000 Total cost assigned to Products 3090000 100.00% 5070000 100.00% 8160000 Activity Based Costing system: Direct cost: Direct Labour 336000 10.30% 520000 10.76% 856000 Direct Material 1956000 59.97% 3315000 68.60% 5271000 Indirect cost: Supporting labour 247800 7.60% 383500 7.94% 631300 Batch setups 492000 15.08% 384000 7.95% 876000 Product sustaining 230000 7.05% 230000 4.76% 460000 Total cost assigned to product 3261800 100.00% 4832500 100.00% 8094300 Cost not assigned to product: Others 65700 Total cost 8160000