Question

Eastern Chemical Company produces three products. The operating results of the current year are: Product A B C Sales Quantity Target Price Actual Price 1, 100.00 $ 286.00 $ 287.00 5,500.00 298. 60 256.60 550.00 203. 50 311.00 Difference $ 1.00 (42.00 $ 107.50 The firm sets the target price of each product at 150% of the product's total manufacturing cost. It appears that the firm was able to sell Product Cat a much higher price than the target price of the product and lost money on Product B. Tom Watson, CEO, wants to promote Product C much more aggressively and phase out Product B. He believes that the information suggests that Product C has the greatest potential among the firm's three products because the actual selling price of Product C was almost 50% higher than the target price, while the firm was forced to sell Product B at a price below the target price. Both the budgeted and actual factory overhead for the current year are $548,100. The actual units sold for each product also are the same as the budgeted units. The firm uses direct labor dollars to assign manufacturing overhead costs. The direct materials and direct labor costs per unit for each product are: Direct materials Direct labor Total prime cost Product A $ 51.00 21.00 $ 72.00 Product B $ 115. 40 13.00 $ 128. 40 Product C $ 66.00 11.00 $ 77.00 The controller noticed that not all products consumed factory overhead similarly. Upon further investigation, she identified the following usage of factory overhead during the year: Product B 6 Product C 4 251 351 Number of setups Weight of direct materials (pounds) Waste and hazardous disposals Quality inspections Utilities (machine hours) Total Product A 3 401 26 31 2, 200 46 36 7, 100 31 36 1, 100 Total Overhead $ 9, 100 121, 000 275,000 76,000 67,000 $ 548, 100

Answer 1

All the process you done is correct.

But there is mistake in rounding.

Product cost for Product B = 170.14 $

Target price for Product B = 255.21 $

Computation of target price Activity Setup cost Weight of direct materials Waste and hazardous disposals Quality inspections Utilities Product Al Product B Product C A B с 3 6 4 401 251 351 26 46 31 31 36 36 2,200 7,100 1,100 Total A+B+C=D 13 1,003 103 103 10,400 Cost Rate E E/D 9,100 700.00 121,000 120.64 275,000 2,669.90 76,000 737.86 67,000 6.44 Overhead cost for Product B Rate a Setup cost 700.00 Weight of direct materials 120.64 Waste and hazardous disposals 2,669.90 Quality inspections 737.86 Utilities 6.44 Total Number of units Overhead cost per unit Direct materials Direct labor Product cost per unit for product B Target price = 170.14*1.5 Volume Amount b a*b 6 4,200.00 251 30,280.64 46 122,815.40 36 26,562.96 7,100 45,724.00 229,583 A 5,500B 41.74 A/B=C 115.40D 13.00 E 170.14 C+D+E 255.21