target price at | IU percent or its TUlL prouuct cost. Kecenuy, nowever, tne simple- model lawnmower has come under increasing price pressure from offshore competitors. The result was that the price on the simple model has been lowered to $110. Sony's President Mr Cameron recently asked the controller Ms Maria, \"Why can't we compete with these other companies? They're selling lawnmowers just like our simple model for $106. That's only a dollar more than our production cost. Are we really that inefficient?" Maria 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 judgement, our product-costing system is distorting our lawnmower costs. She then ran a few numbers to demonstrate what she meant. She compiled the basic data needed to implement an ABC system. These data are displayed in the following table. The percentages are he proportion of each cost driver consumed by each product line. Activity Cost Pool Cost Driver Simple Standard Super Depreciation, machinery Machine time 40% 13% 47% Maintenance, machinery Engineering Engineering 47% 6% 47% Inspection and repair of hours defects Purchasing, receiving, and Number of 47% 8% 45% shipping material orders Material handling Depreciation, taxes, and Factory space 42% 15% 43% insurance for factor usage Miscellaneous manufacturing overhead 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. Round to the nearest dollar. 3. Calculate a new target price for the three products, based on the ABC system. Compare the new target price with the current actual selling price for the simple model lawnmower. 4. Interpret your calculations and present an analysis as to what has been happening as a result of the firm's traditional, volume-based product-costing system. 5. What strategic options does Sony Manufacturing have? What do you recommend and why? *THE END' Sony Manufacturing manufactures three models of Lawnmowers, Simple, Standard and Super. The following details are provided for the year ended 31 December 2021. Simple Standard ' Super Annual sales (units) 20,000 1,000 ' 10,000 Product costs: ' Raw material $10 $25 $42 Direct Labour 10(0.5 hrs@$20) 20 (1 hr @520) 20 (1 hr @520) Manufacturing overhead 85 170 l 170 Total product cost $105 5215 l 5232 Calculation of predetermined overhead rate: Manufacturing-overhead budget Depreciation, machinery $1,480,000 Maintenance, machinery 120,000 Depreciation, taxes, and insurance for factory 300,000 Engineering 350,000 Purchasing, receiving, and shipping 250,000 Inspection and repair of defects 375,000 Material handling 400,000 Miscellaneous manufacturing overhead costs 295,000 Total $3,570,000 Direct-labor budget: Simple model: Standard model: Super model: 10,000 hours 1,000 hours 10,000 hours Total 21,000 hours Predetermined overhead rate = Budgeted overhead lBudgeted direct-labor hours = $3,570,000/21,000 hours = $170 per hour For the past 10 years, the Sony's pricing formula has been to set each lawnmower's target price at 110 percent of its full product cost. Recently, however, the simple- model lawnmower has come under increasing price pressure from offshore competitors. The result was that the price on the simple model has been lowered to $110. Sony's President Mr Cameron recently asked the controller Ms Maria, \"Why can't we compete with these other companies? They're selling lawnmowers just like our simple model for $106. That's only a dollar more than our production cost. Are we really that inefficient?" Maria 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 judgement, our product-costing system is distorting our lawnmower costs. She then ran a few numbers to demonstrate what she meant. She compiled the basic data needed to implement an ABC system. These data are displayed in the following table. The percentamr consumed by each