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Paragraph Font Sutcliffe Electronics Sutcliffe Electronics, a division of Best Corporation, Mammoth, which has been produced since 2013, and sells for $990, and the Maximum, a newer model introduced in manufactures two large-screen television models, the Based on the following income statement for the year ended November 30, 2018, senior management at Best Corporation have decided to concentrate Sutcliffe's marketing resources on the model and to begin to phase out the Mammoth model because Maximum generates a much bigg per unit er operating income Sutcliffe Electronics Income Statement for the Fiscal Year Ended November 30, 2018 Mammoth Total Maximum $21,780,000 13,794,000 7,986,000 6,413,000 $1,573,000 22,000 $71.50 $5,016,000 3,511,200 I 504800 1,075,800 $429,000 4,000 $107.25 Revenue Cost of Goods Sold Gross Selling and Admin Operating Income Units produced and sold Operating Income per unit so $26,796,000 9.490,800 7488,800 2002,000 gin Details of cost of goods sold for Mammoth and Maximum are as follows: Maximum Mammoth Per Unit Total Per Unit Total $642.40 46.20 79 20 $767.80 $110.00 $877.80 $5 033,600 435,600 3,484,800 $3,954,000 $4,840,000 $13,794,000 $2,569,600 184,800 316,800 $3,071,200 $440,000 $3,511,200 $228.80 19.80 158.40 $407.00 $220.00 $627.00 Direct Materials Direct Mfg. Labor Machine Cests Total Direct Costs MOH Costs Total COGS Mammoth requires 1.5 hours per unit and Maximum requires 3.5 hours per unit. The direct manufacturing labor cost is $13 20 per hour costs include lease-costs of the machine, repairs, and maintenance. Mammoth requires 8 machine hours per unit and Maximum requires 4 machine-hours per unit. The machine hour rate is $19.80 per hour. c Manufacturing overhead costs are allocated to products based on machine-hours at a rate of $27 50 t per hour Sutcliffe's controller, Colin Hanton is advocating the use of activity-based costing and activity-based management and has gathered the following information about the company's manufacturing overhead costs for the November 30, 2018 Units of the Cost Allocation Base Maximunm Allocation Center Total Activity Costs Mammoth (Cost Allocation Base Soldering (number of solder points) Shipments (number of Total $1,036,200 946,000 1,364,000 1,190,000 16,000 57,200 380,000 4,000 20,300 1,570,000 20,000 77,500 shipments) Quality control (number of inspections) Purchase orders (number of orders) Machine power (machine hours) Machine setups (aumber of setups) Total Manufacturing Overhead 1,045,440 63,360 825,000 $5,280,000 79,600 170,000 17,000 110,480 22,000 13,000 190,080 192,000 30,000 his analysis, Hanton shows the results to Brian Epstein, the Sutcliffe division president. Epstein does not like what he sees. "If you show headquarters this analysis, they are going to ask us to Maximum line, which we have just introduced. This whole costing stuff has been a major problem for us. First Mammoth was not very profitable, and now Maximum "Looking at the ABC analysis, I see two problems. First, we do many more activities than the ones you have listed. If you had included all activities, maybe your conclusions would be different Second, you have used number of setups and number of inspections as allocation bases. The numbers would be different had you used set-up hours and inspection-hours instead. I know that measurement problems precluded you from using these other cost- allocation bases, but I believe you ought to make some adjustments to our current numbers to compensate for these issues. I know you can do better. We can't afford to phase-out either product." Haston knows that his numbers are fairly accurate. As a quick check, he calculates the profitability of Maximum and Mammoth using more and different allocation bases. The set of activities and activity rates he had used results in numbers that closely approximate those based on more detailed analyses. He is confident that headquarters knowing the Maximum was introduced only recently, will not ask Sutcliffe to phase it out. He is also aware that a sizable portion of Epstein's bonus is based on division revenues. Phasing out either product would adversely affect his boaus. Still, he feels some pressure from Epstein to do something 10:01 A his bonus. Still, he feels some pressure from Epstein to do something. Requirements: 1. Using activity-based costing, calculate the gross margin per unit of the Maximum and Mammoth models