ABC Implementation (CMA adapted) Plume Electronics, a division of Smokee Corporation, manufactures two large-screen television models: The Mammoth, which has been produced since 2019 and sells for $990, and the Maximum, a newer model introduced in early 2021 that sells for $1,254. Based on the following income statement for the year ended, November 20, 2023, senior management at Smokee have decided to concentrate Plume's marketing resources on the Maximum model and begin to phase out the Mammoth model because Maximum generates a bigger operating income per unit. Plume Electronics Income Statement for the Fiscal Year Ended November 30,2023 Details for cost of goods sold for Mammoth and Maximum are as follows. aMammoth requires 1.5 hours per unit and Maximum requires 3.5 hours per unit. The direct manufacturing labor cost is $13.20 per hour. b Machine 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. 'Manufacturing overhead costs are allocated to products based on machine-hours at the rate of $27.50 per hour. Plume's controller, Steve Johnson, is advocating the use of activity-based costing and activitybased management and has gathered the following information about the company's manufacturing overhead costs for the year ended November 30,2023. your answer would be clear to a group of people attending a presentation where no follow-up questions were allowed.) 3. (5 pts.) Comment on Clark's concerns about the accuracy and limitations of ABC. (Again, be specific. Approach this as how you would reply to him in a meeting where a dozen people are present and interested in your knowledge of the topic) 4. (5 pts.) ABC is an integral part of Activity Based Management. Utilizing the ABM reference provided on Moodle (directly under where the case is found), or a reference of your own, discuss how might Plume find the ABM information helpful in managing their business. 5. Include a statement that all of the items on the case format requirements have been used and double-checked. (Failing to use them or include this will result in a significant point loss). After completing his analysis, Johnson shows the results to Charles Clark, the Plume division president. Clark does not like what he sees. "If you show headquarters this analysis, they are going to ask us to phase out the Maximum line, which we have just introduced. This whole costing stuff has been a major problem for us. First Mammoth was not 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 used number of setups and number of inspections as allocation bases. The numbers would be different had you used setup-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." Johnson 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 had used results in numbers that closely approximate those based on more detailed analyses. He is confident that headquarters, knowing that Maximum was introduced only recently, will not ask Plume to phase it out. He is also aware that a sizable portion of Clark's bonus is based on division revenues. Phasing out either product would adversely affect his bonus. Still, he feels some pressure from Clark to do something. Required: (total of 26 pts.) Answer the following questions on an Excel spreadsheet.(See case format requirements following questions.) 1. (10 pts.) Using the Activity Based Costing suggested by Johnson, recreate the income statement and details for cost of goods sold (shown on page 1). (Reminder: I have to be able to follow your work and your statements must be professional) 2. (6 pts.) Explain why these numbers differ from the gross margin per unit of the Maximum and Mammoth models calculated using Plume's existing simple costing system used in the income statement. (Make sure you are specific in your answer and ABC Implementation 2 ABC Implementation 3