Product margin formula traditional costing system

Rocky Mountain Corporation _Traditional & Activity Based Costing

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. (Loss amounts should be indicated with a minus sign. Omit the "$" sign in your response.)

Xactive

Pathbreaker

Total

Product margin

$ [removed]

$ [removed]

$ [removed]

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. (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

$ [removed]

$ [removed]

$ [removed]

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.)