Smoky mountain corporation makes two types of hiking boots”xtreme and

Smoky Mountain Corporation makes two types of hiking boots”Xtreme and the Pathfinder. 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

Requirement 1:
Calculate the predetermined overhead rate. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Predetermined overhead rate $

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.)

Product margin – ?



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):





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 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.)

Product margin – ?

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
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   %   %  
Total cost assigned to products $   $   $



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   %   %  
Total cost assigned to products $   $   $


Costs not assigned to products:          
(Click to select)Direct laborDirect materialsSupporting direct laborBatch setupsOtherProduct sustaining          
Total cost         $

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