Rocky Mountain Corporation makes two types of hiking boots-Xactive and the Pathbreaker. Data concerning these two product lines appear below:
|
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 |
|
| Required: |
| 1. |
Compute the product margins for the Xactive and the Pathbreaker products under the company's traditional costing system. (Negative product margins should be indicated with a minus sign.)
|
|
|
| 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 |
|
|
|
|
|
|
| Total manufacturing overhead cost |
$ |
2,200,000 |
|
|
|
|
|
|
|
|
|
|
|
Compute the product margins for the Xactive and the Pathbreaker products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
|
|
|
| 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.)
|
|
|