Morell Electric Motor Corporation manufactures electric motors for commercial use. The company produces three models, designated as standard, deluxe, and heavy-duty. The company uses a job-order cost-accounting system with manufacturing overhead applied on the basis of direct-labor hours. The system has been in place with little change for 25 years. Product costs and annual sales data are as follows: Standard Model 21, eee Deluxe Model 1,800 Heavy-Duty Model 10,800 $ Annual sales (units) Product costs: Raw material Direct labor Manufacturing overhead Total product cost 12 12 (0.5 hr. at $24) 75 99 $ 27 24 (1 hr. at $24) 150 $ 281 $ 40 24 (1 hr. at $24) 150 $ 214 $ *The calculation of the predetermined overhead rate is as follows: Manufacturing-overhead budget: Depreciation, machinery Maintenance, machinery Depreciation, taxes, and insurance for factory Engineering Purchasing, receiving and shipping Inspection and repair of defects Material handling Miscellaneous manufacturing overhead costs Total $1,400,000 125, eee 319, eee 360, eee 268, eee 380, eee 418,888 355,eee $3,600,eee Direct-labor budget: Standard model: Deluxe model: Heavy-duty model: Total 11,000 hours 2,000 hours 11,000 hours 24,00 hours Predetermined overhead rate: Budgeted overhead Budgeted direct-labor hours $3,68e, eee 24,800 hours = $150 per hour For the past 10 years, the company's pricing formula has been to set each product's target price at 115 percent of its full product cost. Recently, however, the standard-model motor has come under increasing price pressure from offshore competitors. The result was that the price on the standard model has been lowered to $115. The company president recently asked the controller, "Why can't we compete with these other companies? They're selling motors just like our standard model for 114 dollars. That's only a buck more than our production cost. Are we really that inefficient? What gives? The controller responded by saying, "I think this is due to an outmoded product-costing system. As you may remember, I raised a red flag about our system when I came on board last year. But the decision was to keep our current system in place. In my judgment, our product-costing system is distorting our product costs. Let me run a few numbers to demonstrate what I mean." Getting the president's go-ahead, the controller compiled the basic data nee to implement an activity-based costing system. These data are displayed in the following table. The percentages are the proportion of each cost driver consumed by each product line. Product Lines Standard Deluxe Heavy-Duty Model Model Model Cost Driver Activity Cost Pool 1. Depreciation, machinery Maintenance, machinery II. Engineering Machine time 42% 12% 46% Einhen TurntARLA EN 16 A Total $3,600,eee Direct-labor budget: Standard model: Deluxe model: Heavy-duty model: Total 11, eee hours 2,000 hours 11,000 hours 24,000 hours Predetermined overhead rate: Budgeted overhead Budgeted direct-labor hours $3,6ee, eee 24, eee hours = $150 per hour For the past 10 years, the company's pricing formula has been to set each product's target price at 115 percent of its full product cost. Recently, however, the standard-model motor has come under increasing price pressure from offshore competitors. The result was that the price on the standard model has been lowered to $115. The company president recently asked the controller, "Why can't we compete with these other companies? They're selling motors just like our standard model for 114 dollars. That's only a buck more than our production cost. Are we really that inefficient? What gives? The controller responded by saying, "I think this is due to an outmoded product-costing system. As you may remember, I raised a red flag about our system when I came on board last year. But the decision was to keep our current system in place. In my judgment, our product-costing system is distorting our product costs. Let me run a few numbers to demonstrate what I mean." Getting the president's go-ahead, the controller compiled the basic data needed to implement an activity-based costing system. These data are displayed in the following table. The percentages are the proportion of each cost driver consumed by each product line. Product Lines Deluxe Heavy-Duty Model Model Standard Model Cost Driver Machine time 42% 12% 46% Activity Cost Pool I. Depreciation, machinery Maintenance, machinery II. Engineering Inspection and repair of defects III. Purchasing, receiving, and shipping Material handling IV. Depreciation, taxes, and insurance for factory Miscellaneous manufacturing overhead Engineering hours 46% 8% 46% Number of material orders 46% 10% 44% Factory space usage 44% 11% 45% Required: 1. Compute the target prices for the three models, based on the traditional, volume-based product-costing system. 2. Compute new product costs for the three products, based on the new data collected by the controller. 3. Calculate a new target price for the three products, based on the activity-based costing system. For all requirements, round your Intermediate calculations and final answers to 2 decimal places.) Standard Model Deluxe Model Heavy-Duty Model 1. Target price 2. New product cost 3. New target price Morell Electric Motor Corporation manufactures electric motors for commercial use. The company produces three models, designated as standard, deluxe, and heavy-duty. The company uses a job-order cost-accounting system with manufacturing overhead applied on the basis of direct-labor hours. The system has been in place with little change for 25 years. Product costs and annual sales data are as follows: Standard Model 21, eee Deluxe Model 1,800 Heavy-Duty Model 10,800 $ Annual sales (units) Product costs: Raw material Direct labor Manufacturing overhead Total product cost 12 12 (0.5 hr. at $24) 75 99 $ 27 24 (1 hr. at $24) 150 $ 281 $ 40 24 (1 hr. at $24) 150 $ 214 $ *The calculation of the predetermined overhead rate is as follows: Manufacturing-overhead budget: Depreciation, machinery Maintenance, machinery Depreciation, taxes, and insurance for factory Engineering Purchasing, receiving and shipping Inspection and repair of defects Material handling Miscellaneous manufacturing overhead costs Total $1,400,000 125, eee 319, eee 360, eee 268, eee 380, eee 418,888 355,eee $3,600,eee Direct-labor budget: Standard model: Deluxe model: Heavy-duty model: Total 11,000 hours 2,000 hours 11,000 hours 24,00 hours Predetermined overhead rate: Budgeted overhead Budgeted direct-labor hours $3,68e, eee 24,800 hours = $150 per hour For the past 10 years, the company's pricing formula has been to set each product's target price at 115 percent of its full product cost. Recently, however, the standard-model motor has come under increasing price pressure from offshore competitors. The result was that the price on the standard model has been lowered to $115. The company president recently asked the controller, "Why can't we compete with these other companies? They're selling motors just like our standard model for 114 dollars. That's only a buck more than our production cost. Are we really that inefficient? What gives? The controller responded by saying, "I think this is due to an outmoded product-costing system. As you may remember, I raised a red flag about our system when I came on board last year. But the decision was to keep our current system in place. In my judgment, our product-costing system is distorting our product costs. Let me run a few numbers to demonstrate what I mean." Getting the president's go-ahead, the controller compiled the basic data nee to implement an activity-based costing system. These data are displayed in the following table. The percentages are the proportion of each cost driver consumed by each product line. Product Lines Standard Deluxe Heavy-Duty Model Model Model Cost Driver Activity Cost Pool 1. Depreciation, machinery Maintenance, machinery II. Engineering Machine time 42% 12% 46% Einhen TurntARLA EN 16 A Total $3,600,eee Direct-labor budget: Standard model: Deluxe model: Heavy-duty model: Total 11, eee hours 2,000 hours 11,000 hours 24,000 hours Predetermined overhead rate: Budgeted overhead Budgeted direct-labor hours $3,6ee, eee 24, eee hours = $150 per hour For the past 10 years, the company's pricing formula has been to set each product's target price at 115 percent of its full product cost. Recently, however, the standard-model motor has come under increasing price pressure from offshore competitors. The result was that the price on the standard model has been lowered to $115. The company president recently asked the controller, "Why can't we compete with these other companies? They're selling motors just like our standard model for 114 dollars. That's only a buck more than our production cost. Are we really that inefficient? What gives? The controller responded by saying, "I think this is due to an outmoded product-costing system. As you may remember, I raised a red flag about our system when I came on board last year. But the decision was to keep our current system in place. In my judgment, our product-costing system is distorting our product costs. Let me run a few numbers to demonstrate what I mean." Getting the president's go-ahead, the controller compiled the basic data needed to implement an activity-based costing system. These data are displayed in the following table. The percentages are the proportion of each cost driver consumed by each product line. Product Lines Deluxe Heavy-Duty Model Model Standard Model Cost Driver Machine time 42% 12% 46% Activity Cost Pool I. Depreciation, machinery Maintenance, machinery II. Engineering Inspection and repair of defects III. Purchasing, receiving, and shipping Material handling IV. Depreciation, taxes, and insurance for factory Miscellaneous manufacturing overhead Engineering hours 46% 8% 46% Number of material orders 46% 10% 44% Factory space usage 44% 11% 45% Required: 1. Compute the target prices for the three models, based on the traditional, volume-based product-costing system. 2. Compute new product costs for the three products, based on the new data collected by the controller. 3. Calculate a new target price for the three products, based on the activity-based costing system. For all requirements, round your Intermediate calculations and final answers to 2 decimal places.) Standard Model Deluxe Model Heavy-Duty Model 1. Target price 2. New product cost 3. New target price