Toyo Japan plant manufactures three product lines, all multi-purpose kitchenware. The plants three product models are the Product 1 (P1), the Product 2(P2), and the Product 3 (P3). Until recently, the plant used a job-order product-costing system, with manufacturing overhead applied on the basis of direct-labor hours. The following table displays the basic data upon which the traditional costing system was based.

Planned annual production P1 P2 P3 Volume in units 5,000 4,000 1,000 Production runs 40 runs of 125 units 40 runs of 100 units 20 runs of 50 units Direct Material $129 $151 $203 Direct labor (not including setup) 9 hours @ $19 per hour 11 hours @ $19 per hour 13 hours @ $19 per hour Machine Hours (MH) per product unit 10 machine hours 12 machine hours 17 machine hours Total machine hours consumed by product line in a year

The annual budgeted overhead is $1,224,000, and the companys predetermined overhead rate is $12 per direct-labor hour. The product costs for the three product models, as reported under the plants traditional costing system, are shown in the following table.

P1 P2 P3 Direct material $129 $151 $203 Direct labor 9 hours @ 19 per hour 11 hours @ $19 per hour 13 hours @ $19 per hour Manufacturing overhead 9 hours @ 12 per hour 9 hours @ 12 per hour 9 hours @ 12 per hour Total

Toyo Japans pricing policy is to set a target price for each product equal to 130 percent of the full product cost. Due to price competition from other appliance manufacturers, P1 units were selling at $525, and P2 units were selling for $628. These prices were somewhat below the firms target prices. However, these results were partially offset by greater-than-expected profits on the P3 product line. Management had raised the price on the P3 model to $800, which was higher than the original target price. Even at this price, Kitchen Kings customers did not seem to hesitate to place orders, Moreover, the companys competitiors did not mount a challenge in the market for the P3 product line. Neverthless, concern continued to mount in Toledo about the difficulty in the P1 and P2 markets. After all, these were the plants breadand-butter products, with projected annual sales of 5,000 P1 units and 4,000 P2 units. Toyo Japans director of cost management, Angela Ramirez, had been thinking for some time about a refinement in the Toledo plants product-costing system. Ramirez wondered if the traditional, volume-based system was providing management with accurate data about product costs. She had read about activity-based costing, and wondered if ABC would be an improvement to the plants productcosting system. After some discussion, an ABC proposal was made to the companys top management, and approval was obtained. The data collected for the new ABC system is displayed in the following table.

Activity Activity Cost Pool Cost Driver Product Line Cost Driver quantity for product line Machine Related $310,500 Machine hours P1 50,000

P2 48,000

P3 17,000

Total

Material handling 52,500 Production runs P1 40

P2 40

P3 20

Total

Complete an activity-based costing analysis for Toyo Japans three product lines regarding machine related, and material handling activities.