Problem
Smoky Mountain Corporation makes two types of hiking boots-Xtreme and the Pathfinder. Data concerning these two product lines appear below: Xtreme Pathfinder Selling price per unit $ 121.00 $ 85.00 Direct materials per unit $ 64.90 $ 51.00 Direct labor per unit $ 11.20 $ 8.00 Direct labor-hours per unit 1.4 DLHs 1.0 DLHs Estimated annual production and sales 27,000 units 70,000 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 $2,156,000 Estimated total direct labor-hours 107,800 DLHs.
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
|
Expected Activity
|
|
Activities and Activity Measures
|
Overhead Cost
|
Xtreme
|
Pathfinder
|
Total
|
|
Supporting direct labor (direct labor-hours)
|
$
|
700,700
|
37,800
|
70,000
|
107,800
|
|
Batch setups (setups)
|
|
737,000
|
380
|
290
|
670
|
|
Product sustaining (number of products)
|
|
640,000
|
1
|
1
|
2
|
|
Other
|
|
78,300
|
NA
|
NA
|
NA
|
|
Total manufacturing overhead cost
|
$
|
2,156,000
|
|
|
|
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations.