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Thanks for the help and your time! Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1,...

Question

Thanks for the help and your time! Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1,...

Thanks for the help and your time!

Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5) Smoky Mountain Corporation

Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5) Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder Data concerning these two product lines appear below: Fathunder $ 91.00 Selling price per unit Direct materiale per unit Direct labor per unit Direct laber-hours per unit Estimated annual production and wales $126.00 63.20 $31.70 1.3 DLHE 21,000 units $ 9.00 2.0 DLHS 75,000 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 $2,250, 600 102,300 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): Activities and activity Measures Supporting direct labor direct labor-hours Batch setups (setupa) Product sustaining number of products) Other Total manufacturing overhead cost Eatinated Expected Activity Overhead Cost Xereme Pathfinder Total $ 767, 250 27,300 15,000 102.300 722.000 210 170 380 670,000 91,350 NA NA $ 2.250, 600 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. Complete this question by entering your answers in the tabs below.

Answers

Solution 1:

Overhead rate = 2250600/102300 = $22 per DLH

Computation of Product Margin - Traditional Costing System
Particulars Xtreme Pathfinder Total
Selling price per unit $126.00 $91.00
Direct material per unit $63.20 $51.00
Direct labor per unit $11.70 $9.00
Manufacturing overhead cost per unit (Direct labor hours per unit* $22) $28.60 $22.00
Product Margin per unit $22.50 $9.00
Nos of units sold 21000 75000
Total Margin (Product margin per unit * Nos of unit sold) $4,72,500 $6,75,000 $11,47,500

Solution 2:

Determination of activity rate for each activity & allocation of overhead
Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Xtreme Pathfinder
Usage Allocated Costs Usage Allocated Costs
Supporting direct labor cost $7,67,250.00 Direct Labor hours 102300 $7.50 27300 $2,04,750.00 75000 $5,62,500.00
Batch Setups $7,22,000.00 Setups 380 $1,900.00 210 $3,99,000.00 170 $3,23,000.00
Product sustaining $6,70,000.00 Number of products 2 $3,35,000.00 1 $3,35,000.00 1 $3,35,000.00
Other $91,350.00 No allocation
Total $22,50,600.00 $9,38,750.00 $12,20,500.00
Nos of units 21000 75000
Allocated overhead per unit $44.70 $16.27
Computation of Product Margin - Activity based Costing System
Particulars Xtreme Pathfinder Total
Selling price per unit $126.00 $91.00
Direct material per unit $63.20 $51.00
Direct labor per unit $11.70 $9.00
Allocated Manufacturing overhead cost per unit $44.70 $16.27
Product Margin per unit $6.40 $14.73
Nos of units sold 21000 75000
Total Margin (Product margin per unit * Nos of unit sold) $1,34,350 $11,04,500 $12,38,850

Solution 3:

Quantity comparison of traditional cost assignment
Particulars Xtreme Pathfinder Total
Amount % of total Amount Amount % of total Amount Amount
Direct Material Cost $13,27,200.00 25.76% $38,25,000.00 74.24% $51,52,200.00
Direct Labor Cost $2,45,700.00 26.69% $6,75,000.00 73.31% $9,20,700.00
Manufacturing Overhead cost $6,00,600.00 26.69% $16,50,000.00 73.31% $22,50,600.00
Total Cost assigned to Product $21,73,500.00 $61,50,000.00 $83,23,500.00
Quantity comparison of Activity Based cost assignment
Particulars Xtreme Pathfinder Total
Amount % of total Amount Amount % of total Amount Amount
Direct Cost:
Direct Material Cost $13,27,200.00 25.76% $38,25,000.00 74.24% $51,52,200.00
Direct Labor Cost $2,45,700.00 26.69% $6,75,000.00 73.31% $9,20,700.00
Indirect Cost:
Supporting direct labor cost $2,04,750.00 26.69% $5,62,500.00 73.31% $7,67,250.00
Batch Setups $3,99,000.00 55.26% $3,23,000.00 44.74% $7,22,000.00
Product sustaining $3,35,000.00 50.00% $3,35,000.00 50.00% $6,70,000.00
Total Cost Assigned to Products $25,11,650.00 $57,20,500.00 $82,32,150.00
Cost not assigned to products:
Others $91,350.00
Total Cost $83,23,500.00


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