Management at XYZ Company is considering a proposal to install a third production department wihtin its factory building. With the company's present production set up, raw material is processed through Department 1 to produce materials A and B in equal proportions. Material A is then processed through Department II to yield product C. Material B is sold as-is at P202.50 per kilo. Product C has a selling price of P1,000 per kilo. Current per kilogram-standard costs used by XYZ Company follow:

Department I Department II (Materials A & B) Product C) (Material B Prior department's cost 530.30 134.70 Direct materials 200.00 Direct labor 70.00 120.00 Variable overhead 30.00 50.00 Fixed overhead Traceable 22.50 22.50 Allocated (2/3, 1/3) 10.00 10.00 332.50 732.80 134.70 iDepartment I Department II Department III (Materials A & B) (Product C) (Product D) Prior department's cost 528.00 132.00 Direct materials 200.00 Direct labor 70.00 120.00 55.00 Variable overhead 30.00 50.00 20.00 Fixed overhead Traceable 22.50 22.50 17.50 Allocated (2/3, 1/3) 7.50 7.50 7.50 330.00 728.00 232.00