A manufacturing business makes a product in two models. M1 and M2. Details of the two products are as follows:

M1 M2

Annual sales 8,000 units 8,000 units

Number of sales orders 60 250

Sales price per unit 54 73

Direct material cost per unit 11 21

Direct labour hours per unit 2.0 hours 2.5 units

Direct labour rate per hour 8 8

Special parts per unit 2 8

Production batch size 2,000 units 100 units

Set-ups per batch 1 3

Production batch size 1 1

Setups per batch: cost driver

Issues of material for each batch 97,600 number of setups

Overhead analysis 42,000 number of batches

Setup costs 50,000 number of special parts

Material handling costs 31,000 number of sales orders

Special part handling costs 108,000 direct labour hours

Customer invoicing costs 328,600

A customer has indicated an interest in placing a large order for either model M1 or M2, and the sales manager wished to try to sell the higher-priced model M2.

Required

1. Calculate the profit using traditional absorption costing