Santamaria Skiffs manufactures three models of speedboats-Superior, Deluxe, and Ultra-which are sold through marine retail stores. Budgeted information for the coming year is as follows.

Currently, the company allocates overhead using a single predetermined rate based on machine hours.

Irvin Santamaria is considering implementing an activity-based costing system. After studying the company's operations, he developed the following five activity cost pools.

 Irvin also developed the following operating data for the coming year.

 To ensure the highest level of production quality, all machines are set up and calibrated at the beginning of every batch.

Required

a. Calculate the unit cost of each of the three speedboat models using the current system of allocating overhead.

b. Calculate the unit cost of each of the three speedboat models using the proposed activity-based costing system of allocating overhead.

c. Discuss how the change in costing systems will affect the reported profitability of the three speedboat models. How will this change affect the overall profitability of the company?

d. Suppose Santamaria doubles the batch size of each production run. What effect will this change have on the profitability of each model?

e. Based on your findings, what recommendations do you have for improving the company's profitability?

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Total Superior Sales revenue $54,000,000 Direct material 17,600,000 10,700,000 Deluxe Ultra $102,000,000 $242,400,000 85,160,000 40,620,000 69,600,000 $86,400,000 27,360,000 13,320,000 40,200,000 16,600,000 Direct labor Overhead $ 47,020,000 Gross profit Superior Deluxe Ultra 1,200 200 Boats produced and sold Machine hours per boat 1,000 100 800 300