Hi guys I have this case study that I really do not understand and it is due soon can someone help me, I'd really appreciate it!

Case #1

Vroom Corporation manufactures engines for automobiles. The company produces three models which they have labeled Economy, Luxury, and Superior. The company has been using the same job order cost accounting system for the past 15 years. The system applies manufacturing overhead on the basis of direct labor hours. Product cost and annual sales data are as follows:

:

	Economy	luxury	Superior
Annual Sales (units)	1600	2500	1200

Product Cost				Rate per hour
Direct Material	$25	$60	95
Direct labor(# of hours)	1	2	2	$25
Manufacturing overhead(# of hours)	1	2	2	$175

Maufacturing overhead budget

Depreciation machinery $4,100,000

Maintainence machinery 350,000

Depreciation, taxes and insurance for factory 690,000

Engineering 790,000

Purchasing, Receiving and shipping 680,000

Inspection and repair of defects 830,000

Material handling 1,005,000

Misellaneous manufacturing overhead cost 695,000

$9,140,000

Direct labor budget:

Economy 25,000 hours

Luxury 2200 hours

Superior 25,000 hours

52200 hours

Predetermined overhead rate=Budget overhead divided by Budgeted Direct Labor hours

$175 direct labor hour

For the past 5 years, the companys pricing formulas has been to set each products target price at 11 5 percent of its full product cost. Recently, however, the luxury model has come under increasing price pressure from offshore competitors. The result was that the price on the luxury model has been lowered to $500.

The companys president is concerned that they are not able to compete with other companies which are selling similar engines for only dollars above Vrooms production cost. You have been hired to assess the product costing system. You have gathered the following information needed to implement an activity based costing system. The percentages are the proportion of each cost driver consumed by each product line.

Product lines

Economy Luxury Superior

Machinery Depreciation and maintenance	Machine time		40 %		8%		52%
Engineering, Inspection, and repair of defects		Engineering hours		46%		8%		46%
Purchasing, receiving, shipping, & mat'l handling		Number of material orders		44%		16%		40%
Factory depreciation, taxes, ins. For factory and miscellaneous mfg overhead		Factory space usage		40%		15%		45%

Required

Compute the target prices for the three engine models based on the traditional, volume based product costing system. Round the target price to the nearest cent.

Compute new product costs for the three products using an ABC system based on the new data you collected. Round to the nearest cent.

Calculate a new target price for the three products based on the ABC system.

Compare the new target prices with the target prices under the traditional costing system.

Write a memo to the company president explaining what has been happening as a result of the firms traditional volume based product costing system. Include some strategic options that management has.

***The submission should be an excel file.Part 5 is a memo. You should prepare the memo in Word and then cut and paste special (select Microsoft Work Document Object) into your excel worksheet or insert a text box into your worksheet and type your narrative into the text box.

All calculations are to be shown, including the use of Excel formulas where applicable.