Morelli 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					Deluxe Model					Heavy-Duty Model
Annual sales (units)		20,000					1,400					11,500
Product costs:
Raw material		$	16				$	31				$	44
Direct labor			8	(0.5 hr. at $16)				16	(1 hr. at $16)				16	(1 hr. at $16)
Manufacturing overhead*			70					140					140
Total product cost		$	94				$	187				$	200

*The calculation of the predetermined overhead rate is as follows:

Manufacturing-overhead budget:
Depreciation, machinery	$	1,300,000
Maintenance, machinery		135,000
Depreciation, taxes, and insurance for factory		330,000
Engineering		380,000
Purchasing, receiving and shipping		280,000
Inspection and repair of defects		390,000
Material handling		430,000
Miscellaneous manufacturing overhead costs		115,000
Total	$	3,360,000

Direct-labor budget:
Standard model:		11,000		hours
Deluxe model:		2,000		hours
Heavy-duty model:		11,000		hours
Total		24,000		hours

Predetermined overhead rate:	Budgeted overhead	=	$3,360,000	= $140 per hour
	Budgeted direct-labor hours		24,000 hours

For the past 10 years, the companys pricing formula has been to set each products target price at 125 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 $125. The company president recently asked the controller, Why cant we compete with these other companies? Theyre selling motors just like our standard model for 120 dollars. Thats 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 presidents 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
Activity Cost Pool		Cost Driver	Standard Model			Deluxe Model			Heavy-Duty Model
I.	Depreciation, machinery
	Maintenance, machinery	Machine time		40	%		14	%		46	%
II.	Engineering
	Inspection and repair of defects	Engineering hours		46	%		8	%		46	%
III.	Purchasing, receiving, and shipping
	Material handling	Number of material orders		46	%		10	%		44	%
IV.	Depreciation, taxes, and insurance for factory Miscellaneous manufacturing overhead	Factory space usage		42	%		15	%		43	%

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.