Q1. Compute the target prices for the three models, based on the traditional, volume-based product-costing system.

Heavy-Duty
Standard Model Deluxe Model Model
Total Product Cost Per Unit (Traditional Costing) $ 90.00 $ 175.00 $ 185.00
Target Price (110% of full product cost) $ 99.00 $ 192.50 $ 203.50

Q2. Compute new product costs for the three products, based on the new data collected by the controller.
Heavy-Duty
Direct Costs Standard Model Deluxe Model Model
Raw Material $ 20.00 $ 35.00 $ 45.00
Direct Labor $ 10.00 $ 20.00 $ 20.00
Manufacturing overhead (ABC Costing) $ 66.29 $ 258.57 $ 137.84
Total Product Cost / Unit (ABC Costing) $ 96.29 $ 313.57 $ 202.84

Percentage consumed by Each Product Line Amount Allocated to Each Product Line
Budgeted Standard Deluxe Heavy-Duty Standard Deluxe Heavy-Duty
Activity Cost Pool Cost Driver Cost Model Model Model Model Model Model
I. Depreciation, machinery / Maintenance, machinery Machine time $ 1,430,000 38% 15% 47% $543,400 $214,500 $672,100
II. Engineering Inspection and repair of defects Engineering hours $ 610,000 47% 6% 47% $286,700 $36,600 $286,700
III. Purchasing, receiving, and shipping Material handling # of material orders $ 650,000 47% 8% 45% $305,500 $52,000 $292,500
IV. Depreciation, taxes, and insurance for factory Miscellaneous Factory space usage
manufacturing overhead $ 310,000 40% 19% 41% $124,000 $58,900 $127,100
Annual Sales (# of Units): 19,000 1,400 10,000
Manufacturing Overhead per Unit $ 66.29 $ 258.57 $ 137.84

Q3. Calculate a new target price for the three products, based on the activity-based costing system.

Heavy-Duty
Direct Costs Standard Model Deluxe Model Model
Raw Material $ 20.00 $ 35.00 $ 45.00
Direct Labor $ 10.00 $ 20.00 $ 20.00
Manufacturing overhead (ABC Costing) $ 66.29 $ 258.57 $ 137.84
Total Product Cost / Unit (ABC Costing) $ 96.29 $ 313.57 $ 202.84
Target Price / Unit (110% of full product cost) $ 105.92 $ 344.93 $ 223.12