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DATA INPUT
Gismos (product G): 8,000 units
Thingamijigs (product T): 15,000 units
Whatchamacallits (product W): 4,000 units
Product G Product T Product W
Raw material 105.00$ 157.50$ 52.50$
Direct labor 48.00 36.00 24.00
Manufacturing overhead 420.00 315.00 210.00
Total product cost 573.00$ 508.50$ 286.50$
Manufacturing overhead budget:
Machine setup 15,750$
Machinery 3,675,000
Inspection 1,575,000
Material handling 2,625,000
Engineering 1,034,250
Total 8,925,000$
Direct-labor budget:
Product G: 384,000$
Product T: 540,000
Product W: 96,000
Total 1,020,000
Predetermined overhead rate 875%
Target price as % of cost 150%
Product G Product T Product W
Product cost 573.00$ 508.50$ 286.50$
Target price 859.50 762.75 429.75
Actual current selling price 639.00 762.75 600.00
Activity Cost Pool Cost Driver Product G Product T Product W
Machine setup Setups 22% 30% 48%
Machinery Machine hours 24% 50% 26%
Inspection Inspections 16% 44% 40%
Material handling
Raw-material costs
25% 69% 6%
Engineering Change orders 35% 10% 55%
SOLUTION
5. Product costs based on an activity-based costing system:
Product G Product T Product W
Direct material 105.00$ 157.50$ 52.50$
Direct labor 48.00 36.00 24.00
6. Comparison of reported product costs, new target prices, and actual selling prices:
Product G Product T Product W
Reported product costs:
