Accounting Chapter 5 case 68 Consider the method used in #1 and critique it. As top management, would you like other calculations? Describe the alternatives - do not try to compute anything.

Morell Electric Motor Corporation manufactures electric motors for commercial use. The compary produces three models, designated as standard, deluxe, and heavy-duty. The comparty uses a job-order cost-accounting system with manufacturing overhead applied on the basis of direct-fabor hours. The system has been in place with little change for 25 years. Product costs and annual sales data are as follows: "The calculation of the predetermined overhead rate is as follows. Prebeterilhed overhead ratel budeeted gyerhead For the past 10 years, the company's pricing formula has been to set each product's target pnce at 130 percent of its full product cost. Recently, howevec the standard-model motor has come under increasing price pressure from offshore competitors. The result was that the price on the standad model has been lowered to $130, The company president recenty asked the controliec, "Why cant we compete with these other companies? They're selling alotors just like our standard model for 119 dotiars. That's only a buck more than our production cost. Are we really that ineficient? What gives? The controller responded by saying. "I think this is due to an outmoded product-costing system. As you may remember, I rased a red flog abou our system when I came on board last year. But the decision was to keep our current system in place. In my judgnent, our product-costing system is distorting our product costs. Let me run a few numbers to demonstrate what I mean." Geting the president's go-ahead, the controller complied the basic data needed to implement an activity-based costing system, These data are displayed in the following table. The percentages are the proportion of each cost driver consumed by each product line. Step-by-step explanation \begin{tabular}{|l|l|l|l|l|} \hline 3. New target price & & \\ \hline & & StandardModel & DeluxeModel & Heavy-DutyModel \\ \hline & New product cost of the three models & 92.07 & 338.00 & 228.96 \\ \hline & Multiply:Percentoftargetpricebasedontotalproductcost & 130% & 130% & 130% \\ \hline Newtargetprice & 119.69 & 439.40 & 297.65 \\ \hline \end{tabular}