2. Austin Electronics manufactures two large-screen television models: the Royale, which sells for $1,600, and a new model, the Majestic, which sells for $1,300. Few per unit cost data are given: Traditional Costing Royale Majestic DM $700 $420 DL ($20 per hour) $120 $100 MOH ($38 per DLH) $228 $190 In 2017, Austin manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $552 or ($1,600 - $1,048), and Majestic $590 or ($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Austin's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017. Activities Cost Est. Overhead Activity Activity Drivers Cost ($) Level Rate Purchasing No. of orders 1,200,000 40,000 ?? Machine No. of setups 900,000 18,000 ?? Setups Machining Machine 4,800,000 120,000 ?? hours Quality No. of 700,000 28,000 ?? Control inspections Cost Royale Majestic Total Activity Drivers Level Purchasing 17,000 23,000 40,000 Machine 5,000 13,000 18,000 Setups Machining 75,000 45,000 120,000 Quality 11,000 17,000 28,000 Control Required (15 Marks) a) Calculate the activity rates for all the activity cost pools. b) Assign the total 2017 manufacturing overhead costs to the two products using activity based costing (ABC) and determine the overhead cost per unit. c) What was the cost per unit and gross profit of each model using ABC? d) Explain the difference between the cost figures of Traditional and ABC system. e) Are management's future plans for the two models sound? Explain