# Case 5 - 69

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Case 5 - 69
Case 5 – 69
1.0 Compute the target prices for the three models, based on the traditional, volume-based product costing system.

The volume based product costing system comprises the total product cost multiplied by a target selling price. The target selling price in a volume based product costing system can differ from an activity based product costing system because of the way the manufacturing overhead costs are lumped together and applied on the basis of direct-labour hours over all three products.

Standard Model
Deluxe Model
Heavy-Duty Model
Total Product Cost
\$105
\$215
\$232
Target Price Multiplier
110%
110%
110%
Target Selling Price
\$115.50
\$236.50
\$255.20

2.0 Computer new product costs for the three products, based on the new data collected by the controller. Round to the nearest cent.

Using the data the controller has compiled we can now separate the manufacturing overhead costs over the three products to give us a more accurate total product cost. I will be working out the overhead costs based on the activity cost pools given in the case study.

Pool 1: Machine Time
Item
Total
Machine Depreciation
\$1,480,000
Machine Maintenance
\$120,000

\$1,600,000

Model
Calculation
Total
Standard
(\$1,600,000 * 0.4) / 20,000 Units
\$32.00
Deluxe
(\$1,600,000 * 0.13) / 1,000 Units
\$208.00
Heavy-Duty
(\$1,600,000 * 0.47) / 10,000 Units
\$75.20

Pool 2: Engineering Hours
Item
Total
Engineering
\$350,000
Inspection and Repair of Defects
\$375,000

\$725,000

Model
Calculation
Total
Standard
(\$725,000 * 0.47) / 20,000 Units
\$17.04
Deluxe
(\$725,000 * 0.06) / 1,000 Units
\$43.50
Heavy-Duty
(\$725,000 * 0.47) / 10,000 Units
\$34.08

Pool 3: Number of Material Orders
Item
Total
\$250,000
Material Handling
\$400,000

\$650,000

Model
Calculation
Total
Standard
(\$650,000 * 0.47) / 20,000 Units
\$15.28
Deluxe
(\$650,000 * 0.08) / 1,000
\$52.00
Heavy-Duty

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