B & B Electronics Company manufactures two large-screen television models: the Deluxe, which has been produced for many years and sells for $1,100, and the Flat, a new model, which sells for $1,280.

Based on the following income statement for 2020, the CFO at B & B has decided to concentrate the marketing resources on the Flat model and to begin to phase out the Deluxe model.

B & B ELECTRONICS COMPANY

Income Statement

Year Ended December 31, 2020FlatDeluxeTotalSales

$5,120,000$24,200,000$29,320,000Cost of goods sold

3,640,00015,180,00018,820,000Gross margin

1,480,0009,020,00010,500,000Selling and administrative expenses

916,0006,820,0007,736,000Net profit

$564,000$2,200,000$2,764,000Units produced and sold

4,00022,000Net profit per unit sold

$141$100

The standard unit costs for the Flat and Deluxe models are as follows:

FlatDeluxeDirect materials$640

$260

Direct labour:

Flat (3.5 hrs. $20/hr.)70Deluxe (1.5 hrs. $20/hr.)

30Machine usage:

Flat (4 hrs. $25/hr.)

100Deluxe (8 hrs. $25/hr.)

200Manufacturing overhead

100200Standard cost

$910

$690

Manufacturing overhead was applied on the basis of machine hours at a predetermined rate of $25 per hour. B & B's CFO is in favour of using an activity-based costing system and has gathered the following information about the company's manufacturing overhead costs for 2020:

Units of the Cost DriverActivity Centres and Cost DriversActivity CostsFlatDeluxeTotalSoldering (number of solder joints)

$900,000290,0001,210,0001,500,000Shipments (number of shipments)

804,0004,80015,30020,100Quality control (number of inspections)

1,230,00023,00059,00082,000Purchase orders (number of orders)

775,000104,00051,000155,000Machine power (machine hours)

96,00016,000176,000192,000Machine set-ups (number of set-ups)

995,0004,0006,00010,000Total traceable costs

$4,800,000

Using activity-based costing, calculate the gross margin for Flat model and Deluxe model.(Roundper machine hour to5 decimal places, e.g. 15.21156, other intermediate calculations to 2 decimal places, e.g. 15.25 and final answers to 2 decimal places, e.g. 15.25%.)

FlatDeluxeGross margin%%

Using activity-based costing, determine whether B & B Electronics should continue to emphasize the Flat model and phase out the Deluxe model.

B & B Electronics

should continue

should not continue

with its plans to emphasize the Flat model and phase out the Deluxe model.