18-2B

Answer a, b and c please

P18-2B Kinnard Electronics manufactures two home theater systems: the Elite wch sells for $1,400, and a new model, the Preferred, which sells for $1,100. The production cost computed per unit under traditional costing for each model in 2014 was as follows Traditional Costing Elite Preferred $600 $320 80 Manufacturing overhead ($35 per DLH) 175 140 $875 $540 Direct materials Direct labor ($20 per hour) 100 Total per unit cost In 2014, Kinnard manufactured 20,000 units of the Elite and 10,000 units of the Preferred. The overhead rate of S35 per direct labor hour was determined by dividing total expected manufacturing overhead of $4,900,000 by the total direct labor hours (140,000) for the two models. Under traditional costing, the gross profit on the models was Elite Because of this difference, management is considering phasing out the Elite model and increasing the production of the Preferred model Before finalizing its decision, management asks Kinnard's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2014 , and Preferred Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhcad Rate Activity Purchasing Number of Cost Driver 25,000 $ 775,000 orders Machine setups Machining Machine hours Quality Number of 580,000 20,000 29 3,100,000 445,000 100,000 31 Number of inspections The cost drivers used for each product were: 5,000 89 control Cost Driver Elite Preferred Total Purchase orders 1,250 13.75025,000 Machine setups 11,000 9,000 20,000 Machine hours 40,000 60,000 100,000 Inspections 2,750 2,250 5,000 Instructions (a) Assign the total 2014 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (b) What was the cost per unit and gross profit of each model using ABC costing? Are management's future plans for the two models sound? Explain