Purchase Solution

Rocky Mountain Traditional vs Activity-Based Costing

Not what you're looking for?

Rocky Mountain Corporation makes two types of hiking boots - Xactive and Pathbreaker, data concerning these two product lines appear below:
Xactive Pathbreaker
selling price per unit \$132 \$94
direct materials per unit \$64.60 \$53
direct labor per unit \$9.60 \$8.00
direct labor-hours per unit 1.2 DLHs 1.0DLHs
Estimated annual production and sales 24,000 units 70,000 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 direct labor-hours............................ 98,800 DLHs

1. Compute the product margins for the Xactive and the Pathbreaker products under the company's traditional costing system.

* Total margin: Xactive\$________ Pathbreaker\$__________ Total\$______

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
Activities and Activity Measures

Supporting direct labor (DLH) \$ 642,200 28,800 70,000 98,800
Batch setups (setups) 915,000 350 260 610
Product sustaining 840,000 1 1 2
Other 72,800 NA NA NA

Total mfg overhead cost \$ 2,470,000
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 \$ \$ \$

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.)

Xactive Pathbreaker Total
Amount - % of total Amount - % of total Amount

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
Total cost assigned: \$ \$ \$

Activity-Based Costing System
Direct costs:

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Indirect costs:

(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Total cost as: \$ \$ \$

Costs not assigned to products:
(Select one)
Direct materials \$ % \$ % \$
Other
Product sustaining
Supporting direct labor
Batch setups

Total cost \$

Solution Summary

The tutorial, attached in excel, is formatted to show the procedure. This is a template for future problems.

Solution provided by:
Education
• BSc, University of Virginia
• MSc, University of Virginia
• PhD, Georgia State University
Recent Feedback
• "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
• "Thank, this is more clear to me now."
• "Awesome job! "
• "ty"
• "Great Analysis, thank you so much"

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.