Roque Inc. manufactures two component parts for the electronics industry: A-100: Annual production and sales of 50,000 units at a selling price of $78.75 per unit. . Z-900: Annual production and sales of 25,000 units at a selling price of $108.00 per unit. Roque includes all R7D and design costs in engineering costs. Assume the Roque has no marketing distribution or customer-service costs. The direct and overhead costs incurred by Roque for the A-100 and the Z-900 are as follows: Direct materials Direct labour Direct machining costs Manufacturing overhead costs Machine set-up costs Testing costs Engineering costs Total costs A-100 Z-900 $1,530,000 $1,080,000 Total $2,610,000 540,000 360,000 900,000 270,000 180,000 450,000 168,750 900,000 720,000 $5,748,750 Direct material cost and direct labour cost are considered variable costs. Direct machining costs are considered to be fixed costs. Roque's management provides the following information about the activities that cause overhead costs to be incurred: I Activity Set-up Description Testing Engineering Preparing machines to manufacture a new batch of Cost Driver Cost per unit of cost driver products Testing components and Set-up hours $45.00 per set-up hour final product (each unit is fully tested) Testing hours Designing products and $3.60 per testing-hour Costs assigned to processes and ensuring their smooth functioning Complexity of product and process products by special study Focus Other information about the activity-based costing system: A-100 Production batch size 500 units Z-900 200 units Set-up time per batch 15 hours 18 hours Testing and inspection time per unit 2.5 hours 5 hours Engineering costs incurred by product $300,000 $420,000 D Roque is facing competitive pressure to reduce the price if the A-100 and has set a target price of $68.00, well below its current price of $78.75. The challenge for Roque is to reduce the cost of the A- 100. The engineering group has proposed a new product design and process improvements for the "new A-100". The new design would improve product quality and reduce scrap and waste. The reduction in prices will not enable Roque to increase its market share. Conversely, if they do not meet the competitive price of $68.00, they will lose substantial market share. The new design is expect to have the following effect: Direct material costs are expected to decrease by $3.75 per unit. Direct labour costs are expected to decrease by $1.05 per unit. . Time required for testing each unit is expected to be lower by 0.50 hours per unit. . . Machining time required to make the "new" A-100 is expected to decrease by 30 minutes per unit. It currently takes one hour to manufacture a unit of the A-100. The new A-100 will take seven hours to set up. Engineering costs are unchanged. The batch size will remain at 500. There is no anticipated change in the cost per unit of cost driver for the activity-based costs. Required: I 1. Develop full manufacturing costs per unit for the old A-100 and the Z-900. 2. What is the mark-up on full manufacturing costs per unit of each product? 3. What is Roque's target cost per unit for the new A-100 if it hopes to achieve the same mark- up percentage on full cost? 4. Will the proposed changes achieve the cost reduction targets that that Roque has set? 5. What price would Roque charge for the new A-100 if it used the same mark-up percentage on the full product cost per unit for the old A-100? 6. What price should Roque charge for the new A-100 and what steps should it take regarding