Cost Pools Total Cost Standard

Depreciation, Machinery 1,480,000 40%

Maintenance, Machinery 120,000 40%
Engineering 350,000 47%
Inspection and Repair of Defects 375,000 47%
Purchasing, Receiving, and Shipping 250,000 47%
Material Handling 400,000 47%
Depreciation, Taxes, and Insurance 300,000 42%
Misc. Manufacturing Overhead 295,000 42%
Total Overhead 3,570,000.00
Vol
Total Product Cost 105.00 215 232 Ovrhd Cos
Markup 1.10 1.10 1.10 Raw Mat.
Dir. Labor
Standard 115.50 Unit Cost
Deluxe 236.5 Markup
Heavy Duty 255.2 TP

Target Price
New Product Cost
New Product Price

MEMO
Dear President:
The ABC analysis for the traditional costing method was based only on direct labor.
The new analysis now takes into consideration more factors, especially volume.
Now, we see that while the Deluxe items had the least total cost, they cost the most per unit. Given this data, we see a
Thank you.
Sincerely,
LT 9
 \ Deluxe Heavy-Duty
592000 13% 192400 47% 695600
48000 13% 15600 47% 56400
164500 6% 21000 47% 164500
176250 6% 22500 47% 176250
117500 8% 20000 45% 112500
188000 8% 32000 45% 180000
126000 15% 45000 43% 129000
123900 15% 44250 43% 126850
1,536,150.00 392,750.00 1,641,100.00
20000 1000 10000
76.81 392.75 164.11
10.00 25.00 42.00
10.00 20.00 20.00
96.81 437.75 226.11
110% 110% 110%
106.49 481.53 248.72
Standard Deluxe Heavy-Duty
Target Price 115.5 236.5 255.2
New Product Cost 96.81 437.75 437.75
New Product Price 106.49 481.53 248.72

nit. Given this data, we see a huge discrepancy between previous product cost and the new product cost. Hence, the new product
t cost. Hence, the new product price better reflects the cost and margin of the Deluxe product, and we see that it costs much more
we see that it costs much more than the target price.