Russel Crowe Company makes two types of hang gliders—FlyHigh and the LeadBalloon. Data concerning these two product lines appear below:
Selling price per unit $116.00 $80.00
Direct materials per unit $64.00 $52.00
Direct labor per unit $12.00 $8.00
Direct labor-hours per unit 1.5 DLHs 1.0 DLHs
Estimated annual production and sales 29,000 units 76,000 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 $1,912,000
Estimated total direct labor-hours 119,500 DLHs
1. Compute the product margins for the FlyHigh and the LeadBalloon products under the company’s traditional costing system.
2. Compute the product margins for the FlyHigh and the LeadBalloon products under the activity-based costing system.
3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.