Selling price per unit
$ 125.00
Xtreme
Pathfinder
$ 91.00
Direct materials per unit
$ 64.20
$ 55.00
Direct labor per unit
$ 16.00
$ 10.00
Direct labor-hours per unit
1.6 DLHS
1.0 DLH
Estimated annual production and sales
25,000 units
71,000 units
The company has a traditional costing system that applies manufacturing overhead 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
$ 2,331,000
Estimated total direct labor-hours
111,000 DLHS
Required:
1. Compute the product margins for Xtreme and Pathfinder under the company's traditional costing system.
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
Activities and (Activity Measures)
Overhead Cost
Supporting direct labor (direct labor-hours)
$ 888,000
Xtreme
40,000
Expected Activity
Pathfinder
71,000
Batch setups (setups)
583,000
310
220
Product sustaining (number of products)
780,000
1
1
Other
80,000
NA
NA
Total
111,000
530
2
NA
Total manufacturing overhead cost
$2,331,000
Compute the product margins for Xtreme and Pathfinder under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.
