Posted: April 11th, 2016

# Prepare a quantitative comparison of the traditional and activity-based cost assignments?

ocky Mountain Corporation makes two types of hiking boots – Xactive and Pathbreaker, data concerning these two product lines appear below:
Xactive Pathbreaker
selling price per unit \$132 \$94
direct materials per unit \$64.60 \$53
direct labor per unit \$9.60 \$8.00
direct labor-hours per unit 1.2 DLHs 1.0DLHs
Estimated annual production and sales 24,000 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 direct labor-hours………………………. 98,800 DLHs

1. Compute the product margins for the Xactive and the Pathbreaker products under the company’s traditional costing system.

* Total margin: Xactive\$________ Pathbreaker\$__________ Total\$______

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
Activities and Activity Measures

Supporting direct labor (DLH) \$ 642,200 28,800 70,000 98,800
Batch setups (setups) 915,000 350 260 610
Product sustaining 840,000 1 1 2
Other 72,800 NA NA NA

Total mfg overhead cost \$ 2,470,000
Compute the product margins for the Xactive and the Pathbreaker products under the activity-based costing system. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount. Omit the “\$” sign in your response.)

Xactive Pathbreaker Total
* Product margin \$ \$ \$

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your percentage answers to one decimal place and other answers to the nearest dollar amount. Omit the “\$” & “%” signs in your response.)

Xactive Pathbreaker Total
Amount – % of total Amount – % of total Amount

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
Total cost assigned: \$ \$ \$

Activity-Based Costing System
Direct costs:

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Indirect costs:

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Total cost as: \$ \$ \$

Costs not assigned to products:
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Total cost \$

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