Refer to the product costs developed in requirement (2) of the preceding problem. Prepare a table showing how Madison Electric Pump Corporation’s traditional volume-based product-costing system distorts the product costs of the three pump models. (You may wish to refer to Exhibit 5–10 for guidance.

In Exhibit 5–10

Because of rounding in the calculation of the product costs, there will be a small rounding error in this cost distortion analysis aswell.)

Transcribed Image Text:

DEL ULT 752.00 867.80 (115.80) STD Traditional, volume based-costing system: reported product cost....496.00 Activity based-casting system: reported product cost Amount of cost distortion per unit 487.00 S 9.00 S604.00 586.30 S 17.70 Traditional system overcosts STD grills by $9.00 per unit. Traditional system overcosts DEL grills by $17.70 per unit. Traditional system undercosts ULT grills by $(115.80) per unit X Production ume X 10,000 x 8,000 × 2.000 Total amount of cost distortion for enire product line ... $90,000 S141,600 $1231,600) Sum of these three amounts is zero. STD DEL ULT Traditional system shifts costs from ULT product line to STD and DEL product lines.