Assignment no 01 [production cycle] Question One

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Assignment AIS-Production Cycle

Question Two
Xtreme Pathfinder

ASSIGNMENT NO 01 [PRODUCTION CYCLE]

Question One: What are the main differences between traditional and Activity Based Costing? What factors influence management’s decision in selecting ABC?
Question Two: 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	$99
Direct materials per unit	72	53
Direct labor cost per unit	24	12
Direct labor-hours per unit	2 DLHs	1 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

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):

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