Question

Smoky Mountain Corporation makes two types of hiking boots--Xtreme and the Pathfinder. Data concerning these two product lines appear below:
Xtreme Pathfinder
Selling price per unit $140.00 $99.00
Direct materials per unit $72.00 $53.00
Direct labor per unit $24.00 $12.00
Direct labor-hours per unit 2.0 DLHs 1.0 DLHs
Estimated annual production and sales 20,000 units 80,000 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 $1,980,000
Estimated total direct labor-hours 120,000 DLHs

Required:
Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places.)

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 1,980,000 / 120,000

Predetermined manufacturing overhead rate= $16.5 per direct labor hour

Now, we can determine the unitary product margin for each product:

Xtreme:

Selling price= 140

Total cost per unit= 72 + 24 + (16.5*2)= (129)

Product margin= $11

Pathfinder:

Selling price= 99

Total cost= 53 + 12 + (16.5*1)= (81.5)

Product margin= $17.5