Morelli Electric Motor Corporation manufactures electric motors for commercial use. The company produces three models, d

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Morelli Electric Motor Corporation manufactures electric motors
for commercial use. The company produces three models, designated
as standard, deluxe, and heavy-duty. The company uses a job-order
cost-accounting system with manufacturing overhead applied on the
basis of direct-labor hours. The system has been in place with
little change for 25 years. Product costs and annual sales data are
as follows:
*The calculation of the predetermined overhead rate is as
follows:
For the past 10 years, the company’s pricing formula has been to
set each product’s target price at 110 percent of its full product
cost. Recently, however, the standard-model motor has come under
increasing price pressure from offshore competitors. The result was
that the price on the standard model has been lowered to
$110.

The company president recently asked the controller, “Why can’t we
compete with these other companies? They’re selling motors just
like our standard model for 94 dollars. That’s only a buck more
than our production cost. Are we really that inefficient? What
gives?”

The controller 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 judgment,
our product-costing system is distorting our product costs. Let me
run a few numbers to demonstrate what I mean.”

Getting the president’s go-ahead, the controller compiled the basic
data needed to implement an activity-based costing system. These
data are displayed in the following table. The percentages are the
proportion of each cost driver consumed by each product line.
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.
3. Calculate a new target price for the three
products, based on the activity-based costing system