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Eastern Chemical Company produces three products. The operating results of the current year are: Product Sales Quantity Target Price Actual Price Difference A 1,700 $

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

Product Sales Quantity Target Price Actual Price Difference
A 1,700 $ 298.00 $ 299.00 $ 1.00
B 8,500 310.60 268.60 (42.00)
C 850 215.50 323.00 $ 107.50

The firm sets the target price of each product at 150% of the products 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 firms 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 $787,600. 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:

Product A Product B Product C
Direct materials $ 63.00 $ 127.40 $ 78.00
Direct labor 33.00 25.00 17.00
Total prime cost $ 96.00 $ 152.40 $ 95.00

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:

Product A Product B Product C Total Overhead
Number of setups 5 8 6 $ 8,600
Weight of direct materials (pounds) 413 263 363 187,000
Waste and hazardous disposals 38 58 43 425,000
Quality inspections 43 48 48 88,000
Utilities (machine hours) 3,400 8,300 1,700 79,000
Total $ 787,600

Required:

1. Determine the manufacturing cost per unit for each of the products using the volume-based method.

2. What is the least profitable and the most profitable product 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.

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