Smoky Mountain Corporation makes two types of hiking boots—the Xtreme and the Pathfinder. Data concerning these two product lines appear below:



Xtreme Pathfinder
Selling price per unit $ 115.00 $ 84.00
Direct materials per unit $ 65.50 $ 54.00
Direct labor per unit $ 13.60 $ 8.00
Direct labor-hours per unit 1.7 DLHs 1.0 DLHs
Estimated annual production and sales 33,000 units 61,000 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 $ 1,756,500
Estimated total direct labor-hours 117,100 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) Estimated Overhead Cost Expected Activity
Xtreme Pathfinder Total
Supporting direct labor (direct labor-hours) $ 526,950 56,100 61,000 117,100
Batch setups (setups) 790,000 440 350 790
Product sustaining (number of products) 400,000 1 1 2
Other 39,550 NA NA NA
Total manufacturing overhead cost $ 1,756,500


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.