Activity-based costing and markup pricing Based on its 1999 activity, the Moose Jaw Manufacturing Company estimates the following manufacturing sup¬ port costs for 2000 for its plant in Moose Jaw, Saskatchewan.

REQUIRED

(a) Determine the product costs using an activity-based costing system.

(b) If Moose Jaw's target prices for each product are 25% above their respective activity-based costs, what are the target prices for products A, B, and C?

(c) At present, production capacity during regular hours is limited to 12,000 machine hours. Capacity can be expanded up to 4000 additional machine hours by using plant overtime. Overtime premium will add 50% to direct labor costs and 30% to each manufacturing support cost pool. If Moose Jaw expands its capacity by using plant overtime to provide an additional 4000 machine hours, what will Moose Jaw's target prices be, using the 25% markup described in part (bj? What issues should the company consider as it decides whether to expand capacity?(LO 2, 3)

Transcribed Image Text:

COST POOL AMOUNT ACTIVITY COST DRIVERS RATE Machine operations/ maintenance $48,000 12,000 Machine hours $4.00 Supervision 45,000 $225,000 Direct labor dollars 0.20 Materials handling 75,000 100,000 Pounds 0.75 Quality control 66,000 550 Machine setups 75,000 250 Number of inspections Production runs 120.00 300.00 Total $309,000 Moose Jaw's plant manufactures three products: A, B, and C. Data per unit are as follows: ITEM PRODUCT A PRODUCT B PRODUCT C Direct materials Direct labor Machine hours Pounds $12.00 $ 9.00 $15.00 $18.00 $15.00 $20.00 0.4 0.7 0.9 4.0 5.0 7.0 Number of inspections 0.02 0.02 0.05 Number of production runs 0.01 0.01 0.02 1999 Sales price $40.00 $57.00 $78.00 Maximum demand at 1999 prices 12,000 units 12,000 units 6,000 units Actual production in 1999 10,000 units 5,000 units 5,000 units