Eastern Chemical Company produces three products. The operating results of the current year are: Product Sales Quantity 1,000 5,000 500 Target Price Actual Price Difference $ 285.00 $ 286.00 $ 1.00 297.60 255.60 (42.00) 202.50 310.00 $ 107.50 B 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 Cat 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 Chas 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 factory 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: Direct materials Direct labor Total prime cost Product A $ 50.00 20.00 $ 70.00 Product B $ 114.40 12.00 $ 126.40 Product C $ 65.00 10.00 $ 75.00 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the following usage of factory overhead during the year: 1 Number of setups Weight of direct materials (pounds) Waste and hazardous disposals Quality inspections Utilities (machine hours) Total Product A 2 400 25 30 2,000 Product B 5 250 45 35 7,000 ***** Product C 3 350 30 35 1,000 Total Overhead $ 9,000 110,000 250,000 75,000 66,000 $ 510,000 Required: 1. Determine the manufacturing cost per unit for each of the products using the volume-based method. 2. What are the least profitable and the most profitable products under both the current and the ABC systems? 3. What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the actual selling price. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine the manufacturing cost per unit for each of the products using the volume-based method. (Round your answers to 2 decimal places.) Product A Product B Product C Materials Labor Overhead Total cost Required 1 Required 2 Required 3 What are the least profitable and the most profitable products under both the current and the ABC systems? Current Cost Data ABC Costing System Most profitable product Least profitable product Required 1 Required 2 Required 3 What is the new target price for each product based on 150% of the new costs under the ABC system? Compare this price with the actual selling price. (Round your intermediate calculations and final answers to 2 decimal places.) Product A Product B Product C Product costs: Activity system ABC-based product pricing: Target price Actual selling price Difference in price
