Case 5-68 Traditional versus Activity-Based Costing Systems (LO 5-1, 5-2, 5-3, 5-4, 5-5) Morelli Electric Motor Corporation manufactures electric motors for commercial use. The company produces three models, des as standard, deluxe, and heavy-duty. The company uses a job-order cost-accounting system with manufacturing overhead appl the basis of direct-labor hours. The system has been in place with little change for 25 years. Product costs and annual sales dat as follows: Annual sales (units) Product costs: Standard Model 20,000 Deluxe Model 1,000 Heavy-Duty Model 9,200 46 30 (1 hr. at $30) 120 Raw material $ 20 $ 35 Direct labor 15 (0.5 hr. at $30) 30 (1 hr. at $30) Manufacturing overhead* 60 120 Total product cost $ 95 $ 185 $ 196 *The calculation of the predetermined overhead rate is as follows: Manufacturing-overhead budget: Depreciation, machinery Maintenance, machinery Depreciation, taxes, and insurance for factory Engineering Purchasing, receiving and shipping Inspection and repair of defects Material handling Miscellaneous manufacturing overhead costs Total Direct labor budget: Standard model: 10,000 hours Deluxe model: 4,000 hours Heavy-duty model: 10,000 hours Total 24,000 hours $1,300,000 100,000 200,000 280,000 220,000 300,000 350,000 130,000 $2,880,000