5-42 ABC, implementation, ethics. (CMA, adapted) Plum Electronics, a division of Berry Corporation, manufactures two large-screen television models: the Mammoth, which has been produced since 2013 and sells for $990, and the Maximum, a newer model introduced in early 2015 that sells for $1,254. Based on the following income statement for the year ended November 30, 2017, senior management at Berry have decided to concentrate Plum's marketing resources on the Maximum model and to begin to phase out the Mammoth model because Maximum generates a much bigger operating income per unit. Plum Electronics Income Statement for the Fiscal Year Ended November 30, 2017 Mammoth Maximum Total Revenues $21,780,000 $5,016,000 $26,796,000 Cost of goods sold 13,794,000 3,511,200 17,305,200 Gross margin 7,986,000 1,504,800 9,490,800 Selling and administrative expense 6,413,000 1,075,800 7,488,800 Operating income $ 1,573,000 $ 429,000 $ 2,002,000 Units produced and sold 22,000 4,000 Operating income per unit sold $ 71.50 $ 107.25 Details for cost of goods sold for Mammoth and Maximum are as follows: Mammoth Maximum Total Direct materials $5,033,600 Per Unit $228.80 Total $2,569,600 Per Unit $642.40 Direct manufacturing labora Machine costs 435,600 3,484,800 19.80 184,800 46.20 158.40 316,800 79.20 Total direct costs $ 8,954,000 $407.00 $3,071,200 $767.80 Manufacturing overhead costs $ 4,840,000 $ 220.00 $ 440,000 $110.00 Total cost of goods sold $13,794,000 $ 627.00 $3,511,200 $877.80 Units of the Cost-Allocation Base Activity Center (Cost-Allocation Base) Total Activity Costs Soldering (number of solder points) $1,036,200 Mammoth 1,185,000 Maximum Total 385,000 1,570,000 Shipments (number of shipments) 946,000 16,200 3,800 20,000 Quality control (number of inspections) 1,364,000 56,200 21,300 77,500 Purchase orders (number of orders) 1,045,440 80,100 109,980 190,080 Machine power (machine-hours) Machine setups (number of setups) Total manufacturing overhead 63,360 176,000 16,000 192,000 825,000 16,000 14,000 30,000 $5,280,000 Required either product would adversely affect his bonus. Still, he feels some pressure from Clark to do something. 1. Using activity-based costing, calculate the gross margin per unit of the Maximum and Mammoth models. 2. Explain briefly why these numbers differ from the gross margin per unit of the Maximum and Mammoth models calculated using Plum's existing simple costing system. 3. Comment on Clark's concerns about the accuracy and limitations of ABC. 4. How might Plum find the ABC information helpful in managing its business? 5. What should Steve Jacobs do in response to Clark's comments