Most of the company's sales are from has been a standard in the industry for several years; the market for this product is competitive and price sensitive. Casito plans to sell 65,000 of Product #347 in 2011 at a price of $150 per unit. Product #658 is a recent addition to Casto's product line. This product incorporates the latest technology and can be sold at a premium price; the company expects to sell 40,000 units of this product in 2011 for $300 per unit.

Casto's management group is meeting to discuss 2011 strategies, and the current topic of conversation is how to spend the sales and promotion budget. The sales manager believes that the market share for Product #347 could be expanded by concentrating Casto's promotional efforts in this area. However, the production manager wants to target a larger market share for Product #658. He says, "The cost sheets I get show that the contribution from Product #658 is more than twice that from Product #347. I know we get a premium price for this product; selling it should help overall profitability." Casto has the following costs for the two products:

                        Product #347             Product#658

Direct Material            $80                              $140

Direct labor                 1.5 hours                     4 hours

Machine time             0.5 hours                     1.5 hours

Variable manufacturing overhead is currently applied on the basis of direct labor hours. For 2011, variable manufacturing overhead is budgeted at $1,120,000 for a total of 280,000 direct labor hours. The hourly rates for machine time and direct labor are $10 and $14, respectively. Casto applies a material handling charge at 10 percent of material cost; this material handling charge is not included in variable manufacturing overhead. Total 2011 expenditures for materials are budgeted at $10,800,000.

Mark Alex, Casto's controller, believes that before management decides to allocate marketing funds to individual products, it might be worthwhile to look at these products on the basis of the activities involved in their production. Alex has prepared the following schedule to help the management group understand this concept:

                                  Budgeted Cost           Cost Driver     Annual Activity for Cost Driver                   

Material overhead                                         

    Procurement                        $400,000         Number of parts          4,000,000        parts

    Production scheduling        220,000           Number of boards       110,000           boards

    Packaging and shipping      440,000           Number of boards       110,000           boards

                                                $1,060,000                             

Variable overhead                                          

    Machine setup                    $446,000         Number of setups       278,750           setups

    Hazardous waste disposal 48,000             Pounds of waste         16,000 pounds

    Quality control                    560,000           No of inspections        160,000 inspections

    General supplies                 66,000             No of boards               110,000           boards

                                                $1,120,000                             

Manufacturing                                               

    Machine insertion               $1,200,000      Number of parts          3,000,000        parts

    Manual insertion                 4,000,000        Number of parts          1,000,000        parts

    Wave solderiõbpx.Hmbsp;  132,000           Number of boards       110,000           boards

                                             $5,332,000

Alex wants to calculate a new cost, using appropriate cost drivers, for each product. The new cost drivers would replace the direct labor, machine time, and overhead costs in the current costing system.