Posted: December 21st, 2015
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative amount should be indicated by a minus sign. Do not round your intermediate calculations. Omit the “$” sign in your response.)
| Xactive | Pathbreaker | |||||
| Selling price per unit | $ | 127.00 | $ | 89.00 | ||
| Direct materials per unit | $ | 64.80 | $ | 51.00 | ||
| Direct labor per unit | $ | 18.20 | $ | 13.00 | ||
| Direct labor-hours per unit | 1.4 | DLHs | 1.0 | DLHs | ||
| Estimated annual production and sales | 25,000 | units | 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 $2,200,000
Estimated total direct labor-hours 110,000 DLHs
Requirement 1:
(a)
Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Predetermined overhead rate $
(b)
Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system. (Negative amount should be indicated by a minus sign. Round your predetermined overhead rate to 2 decimal places. Round your answers to the nearest dollar amount. Omit the “$” sign in your response.)
Xtreme
Product margin – ?
Pathfinder
Product margin – ?
Requirement 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):
| Estimated | Expected Activity | ||||
| Activities and Activity Measures | Overhead Cost | Xactive | Pathbreaker | Total | |
| Supporting direct labor (direct labor-hours) | $ | 797,500 | 35,000 | 75,000 | 110,000 |
| Batch setups (setups) | 680,000 | 250 | 150 | 400 | |
| Product sustaining (number of products) | 650,000 | 1 | 1 | 2 | |
| Other | 72,500 | NA | NA | NA | |
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| Total manufacturing overhead cost | $ | 2,200,000 | |||
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Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative amount should be indicated by a minus sign. Do not round your intermediate calculations. Omit the “$” sign in your response.)
Xtreme
Product margin – ?
Pathfinder
Product margin -?
Requirement 3:
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round your intermediate calculations. Round your predetermined overhead rate to 2 decimal places. Round your percentage values to 1 decimal places and round all other values to the nearest whole number. Omit the “$” & “%” signs in your response.)
| Xactive | Pathbreaker | Total | |||
| Amount | % of
Total Amount |
Amount | % of
Total Amount |
Amount | |
| Traditional Cost System | |||||
| (Click to select)Supporting direct laborSelling and administrativeOtherDirect materialsBatch setupsProduct sustaining | $ | % | $ | % | $ |
| (Click to select)Direct laborBatch setupsOtherProduct sustainingSelling and administrativeSupporting direct labor | % | % | |||
| (Click to select)OtherManufacturing overheadSelling and administrativeProduct sustainingBatch setupsSupporting direct labor | % | % | |||
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| Total cost assigned to products | $ | $ | $ | ||
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| Activity-Based Costing System | |||||
| Direct costs: | |||||
| (Click to select)Batch setupsSelling and administrativeSupporting direct laborProduct sustainingDirect materialsManufacturing overhead | $ | % | $ | % | $ |
| (Click to select)Supporting direct laborBatch setupsSelling and administrativeManufacturing overheadProduct sustainingDirect laborOther | % | % | |||
| Indirect costs: | |||||
| (Click to select)Direct laborOtherSelling and administrativeManufacturing overheadDirect materialsSupporting direct labor | % | % | |||
| (Click to select)Manufacturing overheadOtherSelling and administrativeBatch setupsDirect laborDirect materials | % | % | |||
| (Click to select)OtherSelling and administrativeDirect laborManufacturing overheadProduct sustainingDirect materials | % | % | |||
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| Total cost assigned to products | $ | $ | $ | ||
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| Costs not assigned to products: | |||||
| (Click to select)Direct laborDirect materialsSupporting direct laborBatch setupsOtherProduct sustaining | |||||
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