additionally:

part 1--Use the worksheet to compute ABC costing.

part 2-- What is the business decision? What advice do you have for management?

Assign overhead to products using ABC and evaluate decision (LO 2). AP XLS P17-2A SJhultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The pro- duction cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials $ 700 $420 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($38 per DLH) 228 190 Total per unit cost $1,048 $710 In 2017, Schultz 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 ($1,600 - $1,048) and Majestic $590 ($1,300 - $710). Because of this difference, management is con- sidering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following in- formation about overhead for the year ended December 31, 2017. Activity- Expected Based Activity Estimated Use of Overhead Cost Pools Cost Drivers Overhead Cost Drivers Rate Purchasing Number of orders $1,200,000 40,000 Machine setups Number of setups $30/order 900,000 18,000 $50/setup Machining Machine hours 4,800,000 120,000 Quality control $40/hour Number of inspections 700,000 28,000 $25/inspection I ms: Set A O The cost drivers used for each product were: Cost Drivers Purchase orders Machine setups Machine hours Inspections Royale 17,000 5,000 75,000 11,000 Majestic 23,000 13,000 45,000 17.000 Total 40,000 18,000 120,000 28.000 (a) Royale $4,035,000 Instructions (a) Assign the total 2017 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? (c) Are management's future plans for the two models sound? Explain. (b) Cost/unit-Royale $981.40