Case study Scenario:

Eastern Chemical Company produces three products. The operating results of the current year are:

The firm sets the target price of each product at $150\%$ of the product's total manufacturing cost. It

appears that the firm was able to sell Product $C$ at a much higher price than the target price of the

product and lost money on Product B$.$ Tom Watson, CEO, wants to promote Product C much more

aggressively and phase out Product B$.$ He believes that the information suggests that Product $C$ has

the greatest potential among the firm's three products because the actual selling price of Product $C$

was almost $50\%$ higher than the target price, while the firm was forced to sell Product B at a price

below the target price.

Both the budgeted and actual manufacturing overhead for the current year are $$510,000.$ The actual

units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars

to assign manufacturing overhead costs. The direct materials and direct labor costs per unit for each

product are:

The controller noticed that not all products consumed manufacturing overhead similarly. Upon

further investigation, she identified the following usage of manufacturing overhead during the year:

Required:

Compute manufacturing overhead allocation rate under a simple costing system.

Determine the manufacturing cost per unit for each of the products using the simple costing

system.

Determine the manufacturing cost per unit for each of the products using the Activity$-$based

Costing system $($ABC$).$